Why UAE banks stand to benefit from higher interest rates?

Why UAE banks stand to benefit from higher interest rates?

Dubai: UAE banks along with their GCC peers stand to benefit from the potential US interest rate hike that is expected to begin in March 2022. A hike in US interest rates will be reflected in lending rates in the UAE and other GCC countries as their currencies are pegged to the dollar with the exception of Kuwait. Kuwaiti dinar is pegged to a basket of currencies with significant weightage to dollar in the currency basket. GCC central banks usually align interest rates with the US rates to avoid monetary policy divergence that could trigger currency volatility and speculation. Analysts expect GCC banks to make significant interest rate margin gains as the interest rates go up. “GCC banks are one of the biggest beneficiaries of rising rates within the emerging market banks space, given access to a sizable non-interest-bearing deposit base while loan books are predominantly floating rate in nature,” said Ehsan Khoman, Head of Emerging Markets Research (EMEA), MUFG. While the UAE banks stand to benefit from the significant share of the loans in floating rate category, Saudi banks stand to gain big because of their higher proportion of non-interest bearing deposits (Islamic deposits) and current and savings account