UAE banking assets to grow by up to 10% next year amid Expo boost and economic recovery

Lenders in the country have received $68.07bn in assistance from the UAE Central Bank, UBF chairman Abdulaziz Al Ghurair says

Abdulaziz Al Ghurair, chairman of UAE Banks Federation. Christopher Pike / The National

UAE’s banking assets are expected to grow by between 8 per cent and 10 per cent in 2022 as the second-biggest Arab economy continues to recover from the pandemic-driven slowdown and reap the benefits of hosting Expo 2020 Dubai, according to chairman of UAE Banks Federation.

The economic rebound was in large part driven by the Dh400 billion ($108.91bn) monetary and fiscal support by the UAE government, including the Central Bank of the UAE’s relief package of more than Dh250bn for lenders in the country since the onset of the pandemic, Abdulaziz Al Ghurair told a media briefing in Dubai on Sunday.

These measures have played a “positive role” and have “taken us from what could have been a disaster to a manageable outcome”, he said.

“Looking forward to next year, I expect our banking [asset] growth to be around 8 per cent [to 10 per cent], which I think is very decent growth when we see other economies still struggling,” Mr Al Ghurair said.

He expects overall lending growth in the UAE to also reach 8 per cent to 10 per cent next year, driven by continued economic momentum. Demand for loans rose in the lead up to Expo 2020 Dubai and is expected to continue to grow in the coming months.

The UAE economy, which contracted 6.1 per cent in 2020 on the back of the global economic slowdown, has bounced back strongly, boosted by fiscal and monetary support and other government measures. The stimulus announced by the CBUAE included a Dh100bn package and consisted a direct Dh50bn injection of funds through zero-cost collateralised loans provided by the central bank. The targeted economic support scheme (Tess) has benefited both individuals and businesses and helped the banks in managing liquidity during the crisis.

The UAE will continue to reap economic benefits of the Expo 2020 for years to come. Antonie Robertson / The National

Although the CBUAE in September said that it will start a “gradual and well-calibrated withdrawal” of Tess, parts of which have been extended to July 2022, about “95 per cent of banks have surrendered Tess because they no longer need it”, Mr Al Ghurair said.

It is an indication of the economic recovery, as customers are “out of trouble and they don’t need support”, he added.

“It’s a very good sign when the banks voluntarily give up support,” Mr Al Ghurair said. “I don’t think we need any support from the central bank. I think the central bank, the government and the country has done enough to support various parts of the economy.”

Mr Al Ghurair, who heads the body representing 53 lenders in the country, said it is time for the UAE banks to move on from support phase and look at “the new businesses we want to concentrate on”.

In terms of asset quality of lenders, UBF chairman said banks have been prudent and took provisions last year and booked additional charges for expected loan losses in 2021. The non-performing loans ratio this year is expected to hit about 8 per cent, however, “2022 will be a good year and we will go back to normal” pre-pandemic NPL ratios of about 2 per cent.

“Of course, during the crisis you expect asset deterioration … [but] hopefully, the bulk of it is all behind us,” he said.

But despite pressure on asset quality, capital adequacy ratios of lenders in the country and their cost-to-income ratios, as well as their profitability is still strong, he added.

The banking regulator in the UAE is also in discussions about the replacement of the Emirates Interbank Offered Rate (Eibor) — the benchmark interest rate for lending between banks within the UAE — with a new system that is likely to be implemented “sometime next year”, Mr Al Ghurair said.

“Eibor is in discussion for replacement,” he said. “The central bank has initiated a discussion and a consultant has been engaged and a mechanism is being discussed.”

The CBUAE has already discussed the matter with UBF's capital market's committee and “now we are just waiting for the right time to launch the replacement … we don’t want to shock the system and we want to find the right time of launching”, he added

There are no winners or losers in the new system, which will be “a fair, transparent pricing mechanism”, he said.

The UAE's economy is forecast to grow 2.1 per cent this year, driven by pandemic-mitigation measures, according to the CBUAE's second quarter review. The economy is expected to grow at 4.2 per cent in 2022, higher than the 3.8 per cent previously forecast.

Mr Al Ghurair expects the gross domestic product to grow probably by around 5 per cent next year.

“The Expo opening was a plus for the country. It took nine years in the works to bring Expo to the UAE and I think [the] UAE will benefit from the expo for the next nine years to come,” he said.

The UBF chairman expects tourism and related businesses, including retail, food and beverages, rent-a-car and hotels to recover strongly amid Expo-driven boost in visitor numbers.

“Tourists play a critical role in the economy and everyone will benefit,” he said.

Lenders in UAE have come out of the pandemic as “dynamic” financial institutions and are ready to support the “Projects of the 50” initiative of the government.

“Banks now respond to opportunities very quickly” and are “responsive” to being a partner in the government initiative as it is a “win-win for everybody”, he added.

UBF members are also investing heavily in digitisation and are cutting brick-and-mortar branch network to be more competitive as demand for online products and solutions continues to grow.

Cyber security, however, is critical in an increasingly digital economy and UBF members can “easily double” their current level of cyber security spending in the next few years, Mr Al Ghurair said without giving further details.