UAE Banks Are Taking Too Many Risks – IIF

Renewed risk-taking behaviour by UAE banks, which is buoyed by a recovering real estate sector and a sharp hike in equity market prices, continues to be worrying despite a favourable near term economic outlook, according to a report by International Institution of Finance (IIF).

IIF raised the UAE’s growth forecast to 4.7 per cent owing to expectations of higher oil output during the first three quarters of this year.

Non-hydrocarbon GDP growth is forecast to accelerate from 4.1 per cent in 2012 to 4.6 per cent this year. IIF attributes the non-oil growth in GDP to Abu Dhabi’s higher capital spending and robust growth in trade, tourism and transportation in Dubai and Abu Dhabi.

Despite the growth rate, IIF cautioned the UAE to be proactive in framing policies that would insulate the economy from major problems.

“Furthering structural reforms, strengthening federal institutions and GREs corporate governance, and improving risk management practices are also important to reinforce the UAE’s resilience to external shocks,” said Dr. Garbis Iradian, deputy director, Africa and the Middle East at IIF and principal author of the report.

IIF also estimated a strong difference in fiscal positions between the oil importers and oil exporters in the MENA region.

The body said that the 16 countries covered in its report are expected to register an overall GDP growth of 2.9 per cent in 2013, which is projected to rise to 3.8 per cent in 2014.

Oil exporting countries in MENA are expected to grow by 3.2 per cent and 3.9 per cent in 2013 and 2014 respectively while oil importing countries struggle with growth rates of 1.8 per cent and 2.4 per cent in 2013 and 2014 respectively.

Plagued with high unemployment rates, persistent macroeconomic imbalances and challenging prospects, countries like Egypt, Syria and Tunisia will continue to struggle to achieve even modest growth, the report said.

“Oil exporting countries, except for Libya and Iran, continue to record robust growth rates and large financial surpluses while maintaining steady progress in diversifying their production base,” said Iradian.

“Ample financial resources, healthy banking systems and continued improvement in the business environment have supported private sector investment and growth and reinforced economic diversification in the GCC.”