18
ANNUAL REPORT 2015
BANKING & MONETARY DEVELOPMENTS
the banking industry in the GCC overall grew at a
lower rate in 2015 than it did in 2014 with just a
7.2 per cent increase, stemming almost exclusively
from major customer segments such as retail and
corporate banking. The 2015 BCG index includes
45 banks from across the GCC, capturing about
80 per cent of the total regional banking sector.
In 2015, retail banking revenues in the GCC
experienced a further uptick of 8.1 per cent, with
the UAE at 10 per cent while retail profits in the
UAE slightly declined by 1.8 per cent. In a report
entitled
UAE Banks: Earnings To Decline in 2016
As Operating Conditions Weaken
(January 2016),
Standard & Poor's (S&P) said it expects negative
earnings growth for banks in the United Arab
Emirates in 2016 and a lacklustre performance
in 2017. Standard & Poor’s believes that the
uncertainty about how long oil prices will remain
low will force businesses and Government to
adopt a more conservative approach, which will
weaken spending on infrastructure and private-
sector investments, and reign in bank lending.
However, S&P noted that, in particular, the top
five banks in the UAE will be able to withstand
the tough times ahead due to their healthy
liquidity, good loan loss coverage and strong
capitalisation levels.
Coface, the credit risk and insurance assessor,
stated that the UAE economy is set to grow by 3.3
per cent in 2016 as the country showed a degree
of resilience amidst the decline in hydrocarbon
prices. In Coface’s
Country Risk Assessment
(February 2016) it was suggested that household
consumption is expected to fuel economic growth,
pushing wages above inflation, while public
investment will decline, limited by the drop in oil
income. The UAE’s 2015 non-oil trade is expected
to have reached AED 1.75 trillion, recording a 10
per cent increase year on year. This reinforces
the country’s position among the top 20 trading
economies of the world. It also means that greater
awareness of trade credit management is necessary.
Credit rating agency Capital Intelligence has
affirmed the UAE’s AA rating and Local Currency
Sovereign Ratings of A1+, declaring the outlook
rating ‘Stable’, acknowledging that the banking
system is broadly sound with healthy levels of
capitalisation and asset quality is improving, while
liquidity ratios remained satisfactory.
It is likely the banking sector will experience
some tightness in liquidity as credit growth
outpaces falling deposits. Deposit growth remains
weak as oil revenues suffer while GDP growth is
expected to have moderated in 2015 on weak oil
prices, it should hold in 2016 and 2017 as non-oil
sector growth improves to around 5-6 per cent on
hospitality, transport and construction activity.
Economic growth is expected to remain positive
in the short to intermediate term, averaging 3.1
per cent in 2016-17, with growth in the services
sectors partially offsetting the impact of low oil
prices on the overall economy. Assuming an average
oil price of USD 35 a barrel in 2016 and USD 50
a barrel in 2017, Capital Intelligence expects the
consolidated budget to post deficits of 4.0 per
cent of GDP and 1.8 per cent, respectively, in 2016
and 2017.
Non-oil sector growth is likely to accelerate
to around 5.5 per cent and 6.0 per cent, year on
year for 2016 and 2017. This sector should be
led higher by firmer activity in tourism, financial
services and construction. Construction activity
is set to accelerate as the Dubai Expo 2020
draws closer.
“
Credit rating agency Capital Intelligence has affirmed the
UAE’s AA rating and Local Currency Sovereign Ratings of
A1+, declaring the outlook rating ‘Stable’, acknowledging
that the banking system is broadly sound with healthy
levels of capitalisation and asset quality is improving, while
liquidity ratios remained satisfactory.
”
