International credit ratings agency Capital Intelligence, or CI, has affirmed the UAE’s long-term foreign and local currency sovereign ratings of AA- and its short-foreign and local currency sovereign ratings of A1+ after taking into account key economic and financial indicators.
The outlook for the rating is stable, meaning it is likely to remain unchanged over the next 12 months, provided that key metrics evolve as envisioned in CI’s baseline scenario and no other credit quality concerns arise. The ratings reflect the overall strength of the UAE’s public and external finances and the resultant capacity to absorb economic shocks; moderate levels of public debt; and generally favourable macroeconomic performance, CI said in a statement. It noted that the consolidated budget surplus of the UAE declined in 2014 to 2.2 per cent (9.9 per cent in 2013) due to the decrease in international oil prices.
CI said the UAE banking system is broadly sound with high levels of capitalization. Although asset quality is improving, the share of non-performing loans in gross loans remains comparatively high, partly due to the problems of the real estate sector in the major emirates and the ongoing financial restructuring of loans owed by a few GREs. Liquidity ratios have improved in recent years and several banks have comfortably repaid the Tier 2 debt capital placed by the government in the early days of the financial crisis. Credit growth regained momentum in 2014, while the rules on credit concentrations introduced by the Central Bank of the UAE have helped to cap the exposure of banks to the real estate market.