S&P Predicts Resilience in Banking Sector and Robust GDP Growth
The UAE’s economy is poised for steady growth, supported by non-hydrocarbon activities, business-friendly policies, and a low corporate tax regime, according to a recent report by S&P Global Ratings.
Key Drivers of Economic Growth
- Non-Hydrocarbon Activity
- Vibrant non-oil sectors, simplified visa regimes, and the success of long-term residency visas are attracting new businesses and residents.
- Non-oil economic performance continues to improve, reducing overall economic risks.
- Hydrocarbon Production
- As oil production rebounds, real GDP growth is expected to remain strong from 2025 to 2027.
- Resilience Amid Challenges
- The UAE has demonstrated economic stability during periods of low oil prices and geopolitical instability, ensuring manageable risks despite potential vulnerabilities.
UAE Banking Sector Outlook
The banking sector in the UAE has capitalized on the robust domestic economy, with improvements in asset quality and credit losses.
Highlights:
- Lending Growth:
Lending is projected to grow steadily in 2025 due to monetary policy easing and favorable economic conditions. - Asset Quality:
Non-performing loans (NPLs) and credit losses are expected to remain low, with top banks reducing NPLs to 4% of gross loans by September 2024, down from 6.1% in 2021. - Profitability:
While bank profitability peaked in 2023 due to high-interest rates, it is expected to stabilize at high levels as rates decline. - Deposits and Funding:
Increased deposits over the past three years have strengthened the sector’s growth momentum, supported by stable government backing and capital buffers.
S&P’s Economic Risk Assessment
S&P notes a positive trend in the UAE’s economic risk profile, highlighting the robust performance of the non-oil economy as a key contributor to improved banking system indicators and reduced credit losses.
Quote:
“We anticipate UAE banks’ resilience to remain underpinned by strong capital buffers, robust funding profiles, and government support despite potential geopolitical and oil price volatility,” said the S&P report.
Future Projections
- Lending Expansion: Sustained by an easing monetary policy and supportive economic conditions.
- Economic Growth: Driven by a mix of hydrocarbon production recovery and strong non-oil sector contributions.
- Risk Mitigation: Managed through demonstrated resilience and a diversified economy.
With these factors in play, the UAE economy is well-positioned to sustain robust growth and maintain its reputation as a global financial and economic hub.
