The UAE banking sector is set for further vibrant growth in 2024 despite global headwinds with the total assets of banks operating in the country surging by 11 per cent year-on-year (YoY) to a record Dh4.1 trillion in 2023, the Central Bank of the UAE (CBUAE) said in a report.
In the last quarter of 2023, banks’ total assets increased by 3.1 per cent quarter-on-quarter while total deposits of resident and non-resident customers with UAE banks rose by 4.2 per cent QoQ and 13.5 per cent YoY to reach Dhs2.5tn at the end of December 2023.
The CBUAE said the reserves of banks operating in the Gulf state reached Dhs88.7bn in Q4 2023, up 5.2 per cent QoQ. The total capital adequacy ratio stood at 17.9 per cent at the end of December 2023, remaining well above the 13 per cent capital adequacy ratio required by the central bank. The apex lender maintained a stable and efficient banking system by providing efficient and effective central banking services.
The central bank’s foreign assets increased by 16.7 per cent QoQ to reach Dh681.2 billion at the end of Q4. The growth was attributed to the quarterly expansions in current account balances and deposits with banks abroad by 27 per cent to Dh94.4 billion and a 10.6 per cent increase in foreign securities to Dhs17.9 billion.
Money Supply M1, which comprises currency in circulation outside banks and monetary deposits, jumped 4.2 per cent QoQ in the last quarter of 2023. On an annual basis, it jumped 12.4 per cent to reach Dh829.3 billion in December.
Liquid assets in the UAE banking sector soared to Dhs742bn in Q4 2023, a 29 per cent YoY increase or Dh165.7 billion from Dh576.3 billion for the same period a year ago.
Two leading rating agencies predicted that the banking sector is likely to maintain its solid performance in 2024 and take the lead in regional growth after a strong third quarter 2023 result despite a slight moderation expected in the second half with the US Federal Reserve likely to start cutting rates in mid-2024. The observed that the country’s banking industry has adequate capital and liquidity buffers to withstand severe shocks. It will continue to benefit from stable and strong capital buffers and good funding profiles. The UAE’s real GDP is projected to expand in 2024, as the country remains relatively insulated from the global economic downturn.
“Strong capital buffers have supported the UAE financial services sector over the years and banks are re-articulating their value proposition to thrive in the new digital environment,” analysts said.
Analysts at Fitch Ratings said the UAE banking sector growth will be driven by robust credit demand stemming from dynamic non-oil sectors and comprehensive economic diversification programs in both countries.
In its GCC Banking Sector Outlook 2024, Fitch also predicts that the UAE and Saudi Arabia will have the most robust return on assets forecasts, and their elevated levels of capitalization position them favorably when compared to both their regional and global peers.
The report forecasts a generally stable credit growth in the GCC for 2024, expecting healthy lending activities throughout the year. “Despite potential challenges such as base effect, persistent high interest rates, growing risk aversion, and uncertainty in external economic activities, the overall outlook for credit growth remains positive, as per the agency’s analysis,” Fitch analysts said.
Banking experts at S&P Global anticipate overall stability in key metrics for GCC banks in 2024. Credit growth and profitability are expected to remain robust, with the UAE and Saudi banking systems leading the region.