Despite the continued economic slowdown, resilient capital and liquidity buffers will help protect UAE banks’ credit profiles. The ratings agency expects the country’s banking system to remain stable as the government’s support for UAE banks to likely remain high and their profitability and capital will provide protection against rising problem loans.
The ratings agency expects real GDP growth of around 2.5 per cent and 1.9 per cent for 2016 and 2017, down from 3.2 percent in 2015 with an increase in problem loans to around 5.5 percent of total loans by mid-2017 following a period of strong recovery, which drove delinquencies down from the 2011 peak of 10.6 per cent to around five per cent currently. Also, tangible common equity to increase to around 15 percent of risk-weighted assets by 2017, up from 14.3 percent as of December 2015. Also, loan-loss reserves were a substantial 94 percent of problem loans as of June 2016; the rating agency expects this level of coverage to continue,” “However, the liquidity buffers remain strong, despite a modest decline, with liquid assets projected to remain around 25 percent of total assets”.
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