Despite challenges like higher interest rates and OPEC oil production cuts, the United Arab Emirates (UAE) is expected to experience robust non-oil GDP growth of 6.0 percent in 2023, according to analysts at S&P Global Rating. This positive economic outlook is anticipated to reduce credit costs for UAE banks this year compared to 2022.

UBS Global Wealth Management also forecasts a strong 4.5 percent expansion in the UAE’s non-oil economy in 2023. This growth is attributed to the non-oil sector’s support for overall economic output, although at a more moderate pace than in 2022. While interest rates are expected to slow credit growth in the Gulf Cooperation Council (GCC) region, UAE and Saudi Arabian banks are expected to be more resilient due to higher net interest margins and efficient business models.

Furthermore, S&P Global Ratings analysts anticipate that GCC banks will maintain comfortable capital buffers, leading to stable capital metrics. Although there may be a slight deterioration in asset quality due to economic slowdown and higher interest rates, precautionary provisions and support from the non-oil economy are expected to help contain an increase in non-performing loans. UAE banks are likely to benefit from their strong deposit bases, although the presence of a significant expatriate population could introduce some volatility to deposits in case of economic shocks. Overall, the banking sector in the GCC is expected to report stronger profitability in 2023 despite ongoing challenges.