Fitch Ratings has confirmed that the financial sector in the United Arab Emirates possesses a strong capacity to endure pressures, bolstered by ample liquidity and high financial stability.
The global credit rating agency conducted a rigorous stress test on the asset quality of the banks it monitors in the UAE. The findings indicated that all these banks could withstand significant pressure without requiring exceptional support, based on assumptions that included a 10% outflow of total deposits and a potential tripling or quadrupling of non-performing loan ratios compared to levels expected by the end of 2025.
Even with these extreme hypothetical scenarios, the results reflect the robustness of liquidity and financial strength.
The Fitch report highlighted that the resilience of the banking sector is further enhanced by the readiness of the Central Bank of the UAE to provide additional liquidity support when necessary, along with the potential for implementing more flexible regulatory measures during extraordinary circumstances.
Furthermore, exposure of banks to the most volatile sectors remains limited, accounting for less than 3% of the total loans, which mitigates potential risks.
Despite the high hypothetical pressures, the results confirm that the capital adequacy of UAE banks remains within a safe range. This is supported by a strong capital base that achieved record levels of capital adequacy by the end of the previous year, comfortably exceeding the requirements of the global Basel III standards, indicating that their resilience is grounded in a solid capital foundation.
Additionally, the country’s strong sovereign credit ratings of AA- from Fitch and Aa2 from Moody’s play a vital role in supporting the stability of banks. These high ratings endow UAE banks with a competitive advantage in accessing global capital markets and obtaining financing at lower costs, enhancing their structural resilience in facing global interest rate fluctuations.