UAE banking outlook negative - Moody's

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NEGATIVE OUTLOOK: Moody's has predicted a negative credit outlook for the UAE banking system. (Getty Images)

The fundamental credit outlook for the UAE banking system is negative, as it comes under strain from falling property prices and tightening liquidity conditions, Moody’s has warned.

Moody’s Investors Service said on Wednesday its prediction covered the next 12 to 18 months and reflects the number of bank loans given to 'opportunistic' developers, who would struggle to repay them as the property market undergoes a correction.

“Moody's is mainly concerned about the loans to 'opportunistic' developers that have been extended over the past four to five years following Dubai's decision to allow freehold ownership for foreigners in 2003,” said John Tofarides, a Moody's analyst.

Another factor is tightening liquidity, which is likely to weigh on future asset growth and profitability, while the collapse in oil prices will weaken the UAE’s fiscal surpluses and economic growth in 2009, Moody’s added.

More positively, UAE banks' deposit ratings were underpinned by a high probability of systemic support, and had strong financial fundamentals overall, it said.

“High oil revenues over the past five years have served as a catalyst for growth and the accumulation of substantial financial reserves,” said Tofarides.

“The banking sector's strong association with local governments and quasi-government institutions, which are the principal architects and drivers of infrastructure, have helped to boost the franchises of local banks,” he added.

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READERS' COMMENTS

Thank-You Moodys
Posted by John Doe on Thursday 15 January 2009 at 11:54 UAE time


A job well done, probably the most correct assessment Moody's has ever given!

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