Dubai: UAE banks have strong capitalisation levels compared to many regional and global counterparts.
Banking analysts expect the capitalisation levels to remain strong as internal capital formation picks up momentum with improving business environment and rising profitability.
“We expect UAE banks’ will maintain the current, strong levels of capital at around 16 per cent in 2013-14, built up from 14.4 per cent as of year-end 2010, as healthy growth in internal capital will fund modest loan growth,” said Khaled Howladar Vice President — Senior Credit Officer at Moody’s.
UAE banks’ liquidity levels are expected to remain high with strong deposit growth. Over the next 12 to 18 months Moody’s expects strong deposit growth in the UAE to increase the contribution of customer deposits to around 65 to 70 per cent of total assets (from 63 per cent as of year-end 2011).
Stable source
In addition to rising corporate deposits, the stronger Abu Dhabi based government related entities (GREs) and a cash-rich federal government are expected to remain an important and stable source of deposits. The government’s share of bank deposits alone was around 20 per cent as of December 2013.
While the UAE banking system’s loan-to-deposit ratio declined to 93 per cent by year-end 2012, analysts expect this ratio will likely climb incrementally over next 12 to 18 months period despite high deposit growth, reflecting the banks’ increased lending appetite. Banks have a limited reliance on wholesale funding (less than 5 per cent of total assets), partly because foreign-sourced funding was largely withdrawn early on in the financial crisis.
