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Central Bank governor expects UAE economy to expand in 2017

The UAE Central Bank governor Mubarak Al Mansouri said that he expects the country’s economy to expand next year at a faster pace, giving a boost to flailing bank growth.

“If we look at expected GDP growth of 2.4 per cent from 2.2 this year, I think there is a hope that growth will continue and banks are still performing their role in terms of lending to the sector, so credit growth has been about 6 per cent this year on average,” Mr Al Mansouri told reporters on the sidelines of a UAE Banks Federation conference in Abu Dhabi today, adding that next year’s lending growth would probably be in line with 2016.

The governor said that stabil­ity in the price of oil had boosted confidence and led to increased spending by companies, although the rate of loan growth is still below the 9 to 10 per cent level it was before the oil price crash in the summer of 2014.

Suvo Sarkar, the head of retail banking at Emirates NBD, on Sunday told Reuters that he expects loan growth at the bank’s retail unit to slow to 5 per cent next year from 10 per cent since the end of last year.

Mr Al Mansouri, however, said that the government’s moves to reduce expenses and increase revenues from non-oil sources was aiding the overall economic health of the country.

Since the price of oil began its sharp descent in 2014, governments in the region such as Abu Dhabi’s have reduced energy subsidies, cut spending and raised debt in international markets to prevent deficits from spiralling out of control.

At the same time they have outlined ambitious plans to transform their oil-reliant economies with measures that include raising value-added taxation and selling off some stakes in major state companies like Saudi Arabia’s Aramco, the world’s largest oil producer.

TheIMF, which last month hailed the Arabian Gulf’s efforts to plug budget deficits, is projecting the UAE’s economy to grow at 2.3 per cent this year and 2.5 per cent next year, broadly in line with the Central Bank’s estimates.

Over the past two years, banks have been hit by dwindling deposits as governments scrambled to find cash as a first line of defence, making lending more difficult and riskier as defaults increased.

Abdul Aziz Al Ghurair, the head of the UAE Banks Federation, said two weeks ago that banking sector profits may fall between 10 and 20 per cent this year versus 2015 as a slowing economy takes its toll on loan growth.

On the other hand, the worst is behind the banking industry in terms of money needed to be set aside for loans gone sour and next year banks will probably report flat profit growth, said Mr Al Ghurair, who is also the chief executive of Mashreq.