New report from BMI Research predicts that UAE banks will seek to diversify their activities geographically
Loan growth will increase in the UAE this year as the country’s macroeconomic outlook improves and infrastructure investment creates new opportunities, according to a new report from BMI Research.
According to the report, deposits will also rise, as rising interest rates encourage savings and rising oil prices and interest rates enable banks to absorb higher credit demand.
Overall, BMI forecasts that deposits and client loans will grow by 7.2 percent and 5 percent, respectively, in 2018.
Over the course of the next few years, BMI predicts real GDP growth to grow from 1.8 percent in 2017 to 2.8 percent in 2018 and 3.3 percent in 2019. The growth, BMI noted, is largely underpinned by rising hydrocarbon prices.
“Higher oil proceeds will boost the government’s fiscal position, enabling more spending and fueling confidence in the economy,” the report said, adding that large-scale investments related to Expo 2020 will also generate lending opportunities.
Additionally, the report noted that the UAE Central Bank’s monetary tightening cycle will send interest rates higher, encouraging more savings, underpinning BMI’s view that deposit growth will outpace lending growth this year.
Lastly, BMI said it does not expect any merger or acquisition activity in the banking sector this year, but noted that expansion outside the country is possible.
“The majority of Emirati banks are relatively profitable, and tend to be owned by local private shareholders, complicating consolidation in the sector,” the report said. “Instead, we believe that UAE-based banks will seek to diversify their activities geographically, either by acquiring stakes in foreign banks o expanding their operations under their own banner.”