UAE banks’ funding profiles should continue to strengthen, says S&P

UAE banks’ funding profiles should continue to strengthen, says S&P

UAE banks are in a comfortable net external asset position with their loan-to-deposit ratios among the strongest in the region, said S&P Global Ratings in a new report on Friday. "Banks in the UAE have been accumulating local deposits over the past 15 months amid muted lending growth and acceleration of lending is not expected, so UAE banks' funding profiles should continue to strengthen, said Mohamed Damak, Senior Director and Head of Islamic Finance, at the agency. One potential downside risk for UAE banks is the country's expatriate-dominated population. This means deposits could be prone to higher volatility during extreme shocks, although they have mostly been stable through past tensions. Moreover, the country is considered a safe haven and tends to benefit from geopolitical instability in the region and beyond via an uptick in local deposits. It is also probable that federal authorities would be highly supportive of the banking system, if needed. Damak said funding sourced from the domestic debt capital market tends to be more stable than cross-border funds, but less stable than core customer deposits. "Having a broad and deep local debt capital market can therefore help a banking system reduce its dependence on external funding and