U.A.E. Banks’ Outlook Raised to Stable on Growth by Moody’s

The outlook for the United Arab Emirates’ banking industry was raised to stable from negative by Moody’s Investors Service as economic growth rebounds and the real-estate market recovers in the second-biggest Arab economy.

Those factors “will lead to a decline in problem loan levels and an increase in profitability over the next 12 to 18 months,” Moody’s said in a report today. “Banks will continue to maintain high liquidity and capital buffers that were built up since the onset of the global financial crisis.”

U.A.E. bank earnings are recovering after the credit crisis sparked a property crash, prompting a surge in loan-loss provisions after defaults jumped. Moody’s said it expects loan growth of 7 percent to 10 percent next year as the U.A.E.’s economy grows 3.6 percent this year and 3.7 percent next, supported by government spending and a recovery in Dubai’s diversified economy.

U.A.E. banks’ ratio of problem loans to gross loans will improve to between 8 percent and 9 percent over the next 18 months from 10.5 percent at the end of 2012 and 9.5 percent at the end of June, Moody’s said in the report.

Lower loan-loss provisions together with modest asset growth will support an increase in U.A.E. banks’ net income to around 2.5 percent of risk weighted assets over the period, from about 2 percent at the end of 2012, Moody’s said.

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