UAE-based banks are expected to see negative earnings growth this year, with another lacklustre performance predicted in 2017, according to a new report by Standard & Poor's.
"Investors are comparing today's tougher conditions for banks in the United Arab Emirates to those during the global financial crisis starting in 2009. However, Standard & Poor's believes that this time is different," said Standard & Poor's credit analyst Timucin Engin.
He forecast that the UAE is likely to see a gradual but longer deterioration in operating conditions for banks over the next several quarters or years.
Engin said that compared to 2009 oil prices are now markedly lower, adding that whereas at that time oil prices began to rebound after a few months of weakness, this time they are expected to remain low for a longer period of time.
"We believe the uncertainty about how long oil prices will remain weak will force businesses and government to adopt a conservative stance, which will weaken spending for infrastructure and private sector investments, and rein in bank lending," he said in a statement.
Standard & Poor's said it expects a slowdown in credit growth and continued weaker deposit growth, with a renewed but manageable deterioration in asset quality.
"All of these factors combined should result in negative earnings growth for the banks in 2016 and a lacklustre performance in 2017," the statement said.For all the latest banking and finance news from the UAE and Gulf countries, follow us on Twitter and Linkedin, like us on Facebook and subscribe to our YouTube page, which is updated daily.
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