Business and economic analysts expect the assets belonging to the banking sector in the UAE will experience positive accelerated growth this year. The key triggers for this growth are the region’s widely anticipated economic bounce back from the COVID-19 Pandemic and rapid digital transformation in the banking sector.
Kavan Choksi- Growth and broader profitability expected in the region
Esteemed business and finance expert Kavan Choksi expects a growth in the net interest proceeds to trigger more profitability in the banking sector in the region. The interest rates in the area are increasing alongside the hike in the rates of interest by the Federal Reserve in the USA. Economic activities in the region have elevated since the outbreak of the coronavirus pandemic in 2020.
GDP growth for the UAE looks optimistic in 2022
In addition to the above, economic and business experts expect oil prices to become higher, social support incentives introduced by the Government, and normalization of the non-oil sectors to trigger a growth in the GDP in the region, which in turn will make the credit worthiness of lenders in the UAE stronger.
Measures incorporated by the UAE Government
The Government in the region extended the TESS scheme measures for forbearance to support the recovery of the economy from the Pandemic until June this year. Banks now need to book extra provisions that affect the quality of their assets and their profitability. The ongoing Ukraine- Russian crisis is another subject for them to take into consideration due to the restricted exposure of UAE banks in these regions.
UAE banks have been recovering since 2021
UAE banks have been improving in profitability significantly since last year from the COVID-19 Pandemic. Credible sources and economic analysts claim that banks in the region have shown exemplary performance in markets that are crucial to the economy. The good news is that this pulse continues and shows increased activity and profitable growth in the region.
Performance data of UAE banks are encouraging for the region’s economic development
The aggregate net income of banks in the region surged by 48.6% YoY (Year over Year) to AED 37.8 billion due to primarily a higher operating income that was +5.2% YoY and reduced impairments -by 30.1% YoY.
UAE Banks are currently experiencing increased liquidity in the markets
The liquidity of UAE banks has increased however they are still exercising caution when it comes to the subject of originating new loans last year. According to business and finance expert Kavan Choksi and other esteemed economic analysts in the region, they are anticipating that UAE banks are currently holding excess reserves compared to their portfolio’s risk profile.
It is due to the above critical factors that economic and business experts are anticipating accelerated economic activities in the region. The major contributing drivers of this growth are increasing prices of oil, government policies, and a return to the usual standards of economic activities. The possibility of preventing the deterioration of the asset-quality indicators with the improvement of the economy over time and the recovery of corporate training will boost consistent accelerated economic growth in UAE’s banking sector soon.