The banking sector in the UAE is expected to continue to perform strongly in 2024, backed by high interest rates despite anticipated reductions. Analysts predict three interest rate cuts totaling 75 basis points in the second half of the year, followed by further cuts of 125 basis points in 2025. Despite this trend, asset quality remains high with a low level of non-performing loans and a coverage ratio of 100%.
In the first quarter of 2024, all banks in the UAE reported significant profit growth, leading rating agencies to be optimistic about the sector’s performance for the rest of the year. Fitch Ratings experts anticipate robust credit demand from non-oil sectors and comprehensive economic diversification programs to drive growth in the banking sector. S&P Global also expects stability in key metrics for GCC banks, with the UAE and Saudi banking systems leading the region in credit growth and profitability.
Moody’s Investors Service recently revised the outlook for UAE banks to positive from stable, citing strong economic growth and diversification efforts. The UAE’s real GDP is expected to grow by 4.6% in 2024, supporting banks’ performance with a 4.5% growth in the non-oil economy. The continued economic growth will boost borrowers’ repayment capacity and banks’ capital buffers, leading to stable profitability.
The banking sector’s growth momentum in 2023 has continued into 2024, driven by the UAE central bank’s strategies and policies. Bank investments in the UAE reached a record high of Dh640.1 billion by the end of January, marking a 19.4% increase from January 2023. The Central Bank of the UAE has maintained a stable and efficient banking system through effective central banking services, recording growth in assets, credit, deposits, and investments while ensuring compliance with high standards of governance, transparency, and risk management.
