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Professionals from the banking sector in the UAE agree that its assets will grow in 2022 because of digital transformation and the recovery of the economy. There is an anticipation that the growth of the net interest will trigger more profitability and the interest rates in the region with the hikes in them from the United States Federal Reserve. Besides the above, experts in the banking sector expect a surge in the prices of oil, support from the government for spending, and the normalization of the activities taking place in the non-oil sectors to support GDP growth and make the creditworthiness of the lenders in UAE stronger.
Kavan Choksi speaks on the recent developments in the banking sector
Business expert and analyst Kavan Choksi states that the government of UAE extended the forbearance measure of the TESS scheme to boost the recovery of the economy until the month of June 2022. However, when the period for loan forbearance expires, the banks need to book extra provisions that affect the quality and the profitability of assets. The ongoing Ukraine and Russia crisis is another subject the banks in the UAE need to consider as they have limited exposure to the above regions.
The recovery of the economy in the UAE has led to the profitability of the banking sector
The profitability of the banks in the UAE recovered a lot last year, with the economy bouncing back from the coronavirus pandemic. According to credible sources, banks have really performed well in the critical income categories that persistently show increased activity.
Boost in liquidity
Due to the increase in liquidity, the banks in UAE have been cautious when it comes to the origination of new loans in 2021. Banking experts have estimated that these banks are holding surplus reserves now more than their risk profile in their respective portfolios.
The rise in the inflation rates and steps to control it in the region
Inflation in the area has attained its highest levels in the last four decades, and the US Federal Reserve’s decision to hike the interest rates was essential for the well-being of the economy. Many believe that the above step was a controversial move. However, it was needed to curb inflation in the region.
Move to boost the rates of interest
After the US Federal Reserve’s choice to improve the rates of interest on reserve balances by 50 basis points, the Central Bank of the UAE decided to follow the same step to increase the rates of interest in the region.
Due to these factors, experts in the industry like Kavan Choksi have anticipated that economic activity in the region will increase in 2022 because of the current policies of the government, a rise in the prices of oil, and a return to normal levels of economic activity in the region. Besides the above, he notes that the probability of banks reducing their asset-quality ratio will continue as the economy of the nation gradually recovers, and activity in the corporate fields recover.
