International rating agency Moody's Investors Service said yesterday that the next 12 to 18 months could be challenging for the UAE banking system in terms of asset quality and profitability.
The rating agency said its outlook for the banking system is negative because of the ongoing trends of corporate deleveraging, asset quality challenges and the subdued profitability of UAE banks in the wake of continued provisioning needs. Moody's clarified that the outlook does not represent a projection on any change in ratings.
"Moody's negative outlook on the UAE banking system is mainly driven by the legacy asset quality challenges related to the ongoing restructuring of some large government-related borrowers," said Khalid Howladar, Vice President — Senior Credit Officer at Moody's Dubai office.
While liquidity has improved and capital buffers are strong, these factors are moderated by legacy asset quality risks, primarily related to the ongoing restructuring of some large government-related borrowers.