UAE's biggest banks face challenging times - Fitch

The operating environment for the UAE’s eight largest banks will continue to be challenging, but rising impairments can be absorbed on stronger capitalisation and sustainable revenue streams, Fitch Ratings said on Monday.

The credit rating agency said asset quality ratios were under pressure and that the banks' non-performing loan ratio of around 2 percent at the end of the first half was likely to grow.

“This is a lag indicator and remains artificially low given the rapid levels of loan growth over the last few years and is likely to rise as growth has slowed significantly and as the existing portfolio loan book seasons,” said Robert Thursfield, a director in Fitch's financial institutions team.

A significant real estate crash across the UAE has not yet been reflected in the banks' financial statements.

However, sensitivity tests conducted by Fitch on asset quality and capital ratios indicate that the eight banks could absorb 100 percent and 220 percent increases in impaired loans over the next two years and still maintain minimum Tier 1 ratios of 12 percent and 8 percent, respectively.

“While the situation has eased somewhat and with the help of some capital injections bank capitalisation has improved, the outlook remains challenging for the UAE's banks,” Thursfield said.

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