Al Ghurair
Al Ghurair speaks at the sixth annual Middle East Banking Forum in Dubai on Sunday. Image Credit: Middle East Banking Forum

Dubai: The UAE’s banking sector maintained steady growth in spite of volatility across global markets and regional challenges and it is expected deliver strong profitability in this year and the year ahead, Abdul Aziz Al Ghurair, Chairman of UAE Banks Federation said on the sidelines of sixth annual Middle East Banking Forum in Dubai on Sunday.

Al Ghurair expects the UAE banking sector to maintain loan growth in excess of 5 per cent this year. With most banks have cleaned up the legacy non-performing assets from their balance sheets and improved asset quality, going forward, he expects financial performance of banks to improve.

Banks are seeing a revival in credit demand from corporates, government and government related entities (GREs).

- Abdul Aziz Al Ghurair, Chairman of UAE Banks Federation

Nine-month bank results broadly confirm that banks have either fully provided for the problem loans linked to the small and medium enterprise sector and or deleveraged substantially from their exposure troubled segments of business.

With economic growth starting to pick up again on the back of higher oil prices and production, as well as increased government spending, Al Ghurair said banks are seeing a revival in credit demand from corporates, government and government related entities (GREs), although overall retail loan growth is expected to remain anaemic.

6%

Sector-wide loan growth

A recent forecast by Institute of International Finance has pegged the sector-wide loan growth above 6 per cent. The 12-month increase in credit was 3.7 per cent, thanks to improvement in lending to the corporate sector and in deposits 8.4 per cent in September 2018. The acceleration in deposits growth was mainly to the substantial increase in government deposits in the banking system.

Rating agencies and independent analysts confirm a steady revival in the financial performance of UAE banks, thanks to the rising interest rates and the improving macroeconomic conditions in the country.

Al Ghurair said improvement in UAE banks’ profitability was driven by higher loan yields and shrinking provisions.

Rating agency Moody’s expect rising interest rates will increase banks’ gross yields as they gradually re-price their loan books. Loans to the corporate and government sectors, which typically carry floating rates that reset at predetermined intervals, account for the bulk (74 per cent as of June 2018) of UAE banks’ loan books.

3.7%

12-month increase in credit

Al Ghurair expects banking sector liquidity to remain strong this year and next year resulting from higher oil prices which will moderate competition for deposits and so ease funding cost pressure.

Real estate lending to remain within policy

Dubai: Bank lending to real estate sector will remain within the policy formula set by the Central Bank of UAE, although the legal restriction to lend to the sector not exceeding 20 per cent of the total deposits was cancelled last months, said Abdul Aziz Al Ghurair, Chairman of UAE Banks Federation.

“While the legal restriction on lending to the real estate sector is removed, we expect the central bank to regulate the total exposure from time to time depending on the market conditions. The central bank now has more flexibility in deciding on lending to this important segment of the economy,” said Al Ghurair.

While the UBF is currently discussing the definition of real estate sector with the central bank to get a clearer view of what qualifies for bank facilities, A Ghurair said the current rules governing loan to value ratios are likely to remain unchanged in the near term.

“The current loan to value ratios on mortgages are sustainable. We need to have property buyers to hold a reasonable level of equity that will protect banks from excessive exposure to volatility in the sector,” he said.