Outlooks On Five UAE Banks Revised To Negative On Deteriorating Operating Environment

The drop in oil prices and lower economic activity due to COVID-19 will lead to a rise in problem loans and the cost of risk for banks in the United Arab Emirates (UAE) in the next 12-24 months. The UAE Central Bank's support package is timely and provides some relief to borrowers, but certain prudential requirements have been relaxed, such as the cap on real estate exposures and higher loan-to-value limits. We also see the risk of a potential weakening of transparency in the recognition and disclosure of problematic assets. We now see negative rather than stable economic and industry risk trends in our Banking Industry Country Risk Assessment of the UAE. We are therefore revising our outlooks on five

...- The drop in oil prices and lower economic activity due to COVID-19 will lead to a rise in problem loans and the cost of risk for banks in the United Arab Emirates (UAE) in the next 12-24 months. - The UAE Central Bank's support package is timely and provides some relief to borrowers, but certain prudential requirements have been relaxed, such as the cap on real estate exposures and higher loan-to-value limits. - We also see the risk of a potential weakening of transparency in the recognition and disclosure of problematic assets. - We now see negative rather than stable economic and industry risk trends in our Banking Industry Country Risk Assessment of the UAE. - We are therefore revising our outlooks on five UAE-based banks to negative from stable due to the combination of systemic and bank-specific factors. - The negative outlook reflects our view that the worsening operating environment could result in a significant deterioration of the banks' asset quality indicators and hamper their...

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