DUBAI: Banks in the UAE, the second biggest Arab economy, have a robust enough funding profile to overcome the macroeconomic challenges caused by the Covid-19 pandemic, ratings agency S&P Global said.
“Strong capital buffers and good profitability despite the sharp increase in cost of risk and lower interest rates” will help lenders to push through headwinds, the agency said in its latest report on the UAE’s banking sector on Sunday, report agencies.“We view the trend in [banking] industry risk in the UAE as stable,” the report said. “Banks should be able to maintain adequate sources of funding and liquidity on higher oil prices.” The UAE’s strong fiscal and external positions, and the strength of the government’s net asset position, have helped the banking sector by counteracting the negative impact of lower oil prices on economic growth since late 2015.
However, the pandemic, which pushed the global economy into its worst recession since the 1930s, presents some challenges for UAE lenders. Interest margins will stabilise at lower levels, mirroring rates globally and locally, but “we expect most banks to show positive results in 2021”, S&P Global said.
The Targeted Economic Support Scheme, a Dh50 billion facility providing zero cost funding to banks to provide liquidity to the economy, has also been extended until the end of the year.
The CBUAE’s support package was timely and reporting requirements by authorities “have reinforced oversight and transparency”.