The international credit rating agency "Fitch" revealed the strong liquidity enjoyed by the UAE banking sector, which enhances the prospects for credit evaluation granted to banks, especially since liquidity is primarily supported by huge government deposits in light of high levels of net foreign assets.
According to the agency, the customer deposit base accounts for about 70 percent of financing, excluding shareholders' equity. Indicating that a large proportion of these deposits are short-term, but characterized by stability. The individual share of deposits in the banking sector (according to September 2020 data) is estimated at about 26.5% of customer deposits, compared to 36% for government deposits and 30% for deposits of semi-government companies.
The agency stated that deposits continued to grow despite the pandemic, as liquidity remained strong. Revealing that the average loan-to-deposit ratio has maintained its stability at around 90 percent over the past four years at major banks, supported by strong liquidity and limited lending opportunities. It expected stability in this ratio this year for state banks, with expectations that credit growth will continue at its low levels and customer deposits will continue to grow with the improvement in the business environment.
The agency expects that the UAE banks will face challenges this year with continued pressures on the quality of assets and profitability in the sector as a result of the Coronavirus, the relative decline in global oil prices, and the end of grace periods in payment as part of plans to support customers in the face of the consequences of the pandemic. The agency expects that the economic conditions will gradually improve with the start of the recovery and a growth rate of 1.8 percent this year and about 2.9 percent in 2022.
Source (Al Khaleej Emirates Newspaper, Edited)
