AbdulAziz Al Ghurair, Chairman of the UAE Banks Federation (UBF). Image Credit: Mashreq

Dubai: Banking sector assets in the UAE will grow in the range of 8 to 10 per cent in 2022, said the chairman of the UAE Banks Federation (UBF) AbdulAziz Al Ghurair.

While the UAE economy is projected to grow about 5 per cent, the banking sector will benefit from the economic revival, he said.

The economy will reap benefits from Expo 2020 for about nine years as more international visitors and investors will be attracted to the country

- Abdul Aziz Al Ghurair, Chairman of the UAE Banks Federation (UBF).

Banks are already seeing improvements in key performance matrixes such as asset quality, liquidity, loans and deposit growth, profitability, loans to deposit ratio, costs, and capitalisation.

While the healthy fundamentals the economy is expected to support banking sector performance during the current year and the next, Al Ghurair expects the non-performing loans (NPL) ratio of the UAE’s banking sector to moderate to 2 per cent in 2022 from the 8 per cent in the current year.

With the third quarter 2021 results trickling in, there are clear indications that the UAE banks have left the worst behind and are entering a period of healthy growth in assets and profits.

Digitalisation in the banking sector

COVID-19 crisis has accelerated digitalisation in the banking sector and across the economy. The business environment during the crisis has forced more banking customers to try digital solutions and now they want more of it. It is indeed a good development for banks, customers and all other stakeholders in the economy,” said Al Ghurair.

The UBF chairman said increased digitalisation is helping the banks to reduce the number of branches and overall costs while offering a better customer experience. While digitalisation is resulting in heavy investments in infrastructure, it is bringing in significant cost savings in terms lower branch networks and more benefits of remote working.

Facts and figures
The latest data from the Central bank showed the need for cost-effectiveness and digitalisation led to the closure of a number of banks branches across the country, resulting in a decline in the number of bank branches from 534 at the end of Q1-2021 to 522 at the end of Q2-2021. Meanwhile, the number of bank staff fell by 414 (1.3 per cent quarter-on-quarter) to reach 32,623 employees at the end of June 2021.

Central Bank support

Al Ghurair said the central bank support was timely and substantial but the banking sector in the country is ready for the phasing out of the support under the Targeted Economic Support Scheme (TESS) of the Central Bank of UAE.

While the CBUAE is set for a gradual withdrawal of its direct liquidity support and regulatory forbearance measures Al Ghurair said the banking sector no longer requires support.

“About 95 per cent of the banks have already surrendered their TESS quotas. This comes their confidence that their customers are able to meet their credit commitments. Banks have taken adequate provisions from the early days of crisis. We expect to see steady a decline in loan impairments over the next few quarters,” he said.

The healthy banking system in the UAE is supportive of the growth momentum in the economy; banks too are gaining from the underlying strength of the operating environment. Al Ghurair said the post-COVID-19 recovery in the economy is going to benefit all sectors that were negatively impacted during the crisis.

“We expect to see strong revival in tourism, hospitality and retail sectors. The real estate sector is already benefiting with gains rents and sale prices,” said Al Ghurair.