����ֱ��

JEDDAH:Global credit rating agency S&P has reaffirmed Abu Dhabi’s “AA” rating and Ras Al-Khaimah’s “A” rating, citing robust fiscal management, infrastructure-led growth, and continued progress in economic diversification as key drivers of their sovereign credit standings.

Abu Dhabi’s rating was confirmed with a stable outlook, underpinned by what S&P describes as one of the strongest government balance sheets globally and ongoing initiatives to strengthen the emirate’s non-oil economy.

Ras Al-Khaimah’s rating was similarly upheld, thanks to strong tourism-driven momentum and sustained investments in infrastructure.

The UAE’s overall economic performance further supports these ratings. According to S&P, the nation’s gross domestic product rose by 3.8 percent year on year in the first nine months of 2024. The non-oil sector was the main contributor, expanding by 4.5 percent to 987 billion dirhams ($268.74 billion).

As the capital, Abu Dhabi plays a central role in the UAE’s macroeconomic profile. “Abu Dhabi has a very wealthy economy, but growth rates remain volatile because about 50 percent of economic output comes from the hydrocarbon sector,” the report noted.

Looking ahead, the agency forecasts the UAE’s economy will remain resilient, projecting 2.5 percent growth in 2025. This outlook is driven by vigorous non-oil activity and increased oil production, with regional geopolitical tensions expected to have limited domestic impact due to the UAE’s internal stability.

S&P expects oil production to rise modestly over the medium term, supported by the relaxation of OPEC+ quotas. Output is anticipated to increase from 2.95 million barrels per day in 2023–24 to 3.04 million bpd in 2025, potentially reaching 3.50 million bpd by 2028. With a total capacity of up to 4.85 million bpd and new gas projects underway, the UAE holds significant upside potential for growth and fiscal surplus enhancement.

The report emphasized Abu Dhabi’s structural reforms aimed at improving the business climate and attracting foreign investment. These include the introduction of a law permitting 100 percent foreign ownership, liberalized personal and family laws, and the Golden Visa Program, which offers long-term residency to investors, entrepreneurs, and skilled professionals.

Despite regional uncertainties, Abu Dhabi’s economic outlook remains secure. A strategic asset in this stability is the Abu Dhabi Crude Oil Pipeline, which allows around half of the emirate’s crude exports to bypass the Strait of Hormuz via the Fujairah Oil Terminal. Additionally, substantial fiscal reserves provide a critical buffer against potential financial shocks.

S&P highlighted the emirate’s fiscal and external strength, noting that while hydrocarbons account for 70 to 75 percent of government revenues, Abu Dhabi maintains one of the largest net asset positions among rated sovereigns, estimated to reach 327 percent of GDP by 2025.

“At the same time, the UAE government has pledged to make the country carbon neutral by 2050 and plans to invest heavily in alternative energy sources that are both renewable and clean,” the report added.

Smaller emirates like Dubai, Ras Al-Khaimah, and Sharjah are also expected to benefit from federal financial backing, particularly from Abu Dhabi, if necessary. Their combined direct debt is projected to reach about 30 percent of Abu Dhabi’s GDP by 2025. Even when accounting for government-related entity debt, Abu Dhabi’s balance sheet is expected to remain in a net asset position above 100 percent of GDP.

Due to limited external data specific to Abu Dhabi, S&P used UAE-wide figures to assess the emirate’s external standing. The report pointed to significant external assets, primarily managed by the Abu Dhabi Investment Authority, as a core strength.

The UAE’s external liquid assets are forecast to exceed its external debt by roughly 215 percent of current account payments over 2025–28. However, gross external financing needs will remain relatively high, at 132 percent.

The Central Bank of the UAE maintains a base interest rate of 4.4 percent, in line with the US Federal Reserve, due to the dirham’s peg to the US dollar. Inflation rose slightly to 0.5 percent in 2024 and is expected to remain modest at 1.3 percent through 2028.

Turning to Ras Al-Khaimah, S&P anticipates that economic growth will ease slightly to an average of 3.3 percent in 2025-26, down from an estimated 3.5 percent in 2024, due to less favorable external conditions.

“We expect RAK’s fiscal performance to remain strong despite higher infrastructure spending in the next two to three years,” the report stated.

RAK’s growth is projected to accelerate to an average of 4.3 percent in 2027-28, driven by key sectors such as tourism, real estate, manufacturing, and mining. Conservative fiscal practices are expected to continue, with budget surpluses averaging 2 percent of GDP from 2025 through 2028.

These surpluses are supported by stable revenues and limited debt, allowing RAK to maintain a net government asset position averaging 21 percent of GDP over the same period. Federal backing remains a financial safety net, easing any potential funding challenges.

RAK posted a fiscal surplus of 2.9 billion dirhams in 2024 — 6.5 percent of its GDP — primarily driven by strong dividends from state-owned firms like RAK Ports and Marjan, solid municipal revenues, and reduced capital spending. Land sales from Marjan are expected to continue supporting fiscal performance, with additional revenues from corporate taxes and hospitality anticipated from 2027 onward. However, fiscal surpluses may moderate as infrastructure spending rises.

S&P concluded that both Abu Dhabi and Ras Al-Khaimah are well-positioned to weather global economic uncertainties. Abu Dhabi’s deep fiscal reserves and mature capital markets complement RAK’s targeted tourism investments and expanding non-oil economy—together reinforcing the UAE’s broader strategy of economic diversification.

RIYADH: Gulf Cooperation Council banks posted $15.6 billion in net profit for the first three months of 2025, a 7.1 percent rise from the previous quarter and the highest on record.   

According to a report by Kuwait-based Kamco Invest, the strong performance was supported by higher non-interest income, a sharp drop in loan impairments, and lower operating expenses. This came despite a decline in net interest income, which fell for the first time in eight quarters. 

The UAE posted the highest quarterly increase in net profit, with earnings rising by $639.6 million compared to the previous quarter, followed by gains in ����ֱ�� and Bahrain. 

On an annual basis, year-on-year growth was mixed across the region. While Saudi banks recorded a strong 17.2 percent increase in net income, banks in Qatar and Kuwait reported declines. 

Total revenues edged up just 0.04 percent to a record $34.6 billion, supported by resilient credit demand and a sharp decline in provisioning costs. 

According to the report, aggregate gross loans increased 3.6 percent, the fastest pace in 15 quarters, while customer deposits surged 5.1 percent to reach $2.65 trillion, underscoring continued liquidity strength across the region. 

However, interest earnings declined as the effects of rate cuts in the second half of 2024 began to take hold. Net interest income, the revenue banks earn from loans after subtracting what they pay on deposits, fell 1.7 percent to $22.8 billion. At the same time, the average yield on credit dropped to 4.16 percent, down from 4.21 percent. 

The latest performance underscores the GCC banking sector’s resilience following several years of strong credit expansion, supported by government-backed infrastructure projects, low credit defaults, and high liquidity buffers. 

Unlike banks in developed markets that have grappled with rising delinquencies and interest rate volatility, lenders in the Gulf have benefited from robust capitalization, prudent risk management, and steady non-oil economic growth. 

The combination of stable monetary policy, rising consumer and corporate demand, and state-led diversification initiatives continues to differentiate the region’s banking landscape, even as global financial conditions tighten. 

Saudi banks lead credit expansion  

Despite this decline, Saudi banks stood out for their substantial credit expansion. According to Kamco Invest, the Kingdom posted the region’s highest year-on-year loan growth in the first quarter. This growth was broad-based, covering sectors such as construction, real estate, education, and transportation. Outstanding credit facilities in the nation reached SR3.1 trillion, according to the Saudi Central Bank. 

Kamco also noted that Saudi banks reported one of the highest loan-to-deposit ratios in the GCC, at 95.5 percent, during the first quarter, underscoring aggressive lending activity relative to deposit mobilization. 

Current and savings account balances stood at $561 billion, accounting for 63.3 percent of total deposits, indicative of a strong, low-cost funding base. However, external analysts have raised caution over potential funding constraints. 

A recent report by Bloomberg highlighted the growing pressure on Saudi banks to sustain deposit growth amid a tightening liquidity environment. 

In the absence of further expansion in CASA deposits, Bloomberg consensus forecasts suggest that lending growth in the Kingdom may decelerate to between 11 and 12 percent in 2025, compared to an estimated 14 percent last year. 

While project finance and mortgage lending continue to support overall loan book growth, Bloomberg noted that corporate overdrafts and trade finance facilities have shown volatility over recent quarters. 

According to Kamco’s data, the region as a whole continues to show signs of balance sheet strength, with loan impairments falling by one-third to $2.1 billion. This drove the cost of risk down to 0.45 percent, among the lowest levels in recent years. 

Saudi banks recorded the lowest cost of risk at just 0.30 percent, benefiting from improved asset quality and a supportive economic environment. Operating expenses across the GCC also declined by 4.3 percent to $13.6 billion, helping maintain a cost-to-income ratio of 40 percent. 

GCC banks diversify income  

According to Kamco, return on equity remained strong across the board, averaging 13.6 percent for listed GCC banks. UAE banks posted the highest ROE at 16.6 percent, followed by ����ֱ�� at 13 percent and Qatar at 12.7 percent. However, net interest margins across the region dipped slightly to 3.10 percent from 3.14 percent due to the re-pricing of loans at lower rates. UAE banks retained the highest NIM at 3.34 percent. 

Even as interest income moderated, banks expanded their non-interest income, which included fees, commissions, and investment gains. Non-interest income rose 2.2 percent to $11.8 billion in the first quarter, led by UAE-listed banks with a 3.9 percent quarterly gain to $5.2 billion. 

According to the data presented in Kamco’s report, this rising contribution from non-interest income implies a gradual diversification of GCC banks’ revenue streams, helping offset margin compression and supporting profitability amid a more challenging interest rate backdrop. 

The performance of GCC banks stands in contrast to global banking trends, where high interest rates and tighter credit conditions have weighed on profitability. 

According to Kamco Invest, citing the International Monetary Fund, global credit risk is rising as borrowers face higher debt service burdens, with approximately $5.5 trillion in corporate debt maturing in 2024. 

This particularly affects the leveraged loan market, where default rates have increased. Meanwhile, Gulf banks benefit from strong capital buffers, low non-performing loan ratios, and government-backed infrastructure investments. The GCC-wide loan-to-deposit ratio eased slightly to 81.6 percent, indicating that most banks continue to hold more deposits than loans, providing a liquidity cushion. 

Kamco’s analysis also noted that central banks across the GCC largely maintained policy rates during the quarter, offering monetary stability amid global uncertainty. 

In Kuwait, total credit exceeded 50 billion Kuwaiti dinars for the first time, while Qatar saw its strongest loan growth in over two years, mainly due to lending to public entities and contractors. 

Looking ahead, rating agencies maintain a stable view of the region’s banking sector. Moody’s and Fitch Ratings expect profitability to remain solid in 2025, supported by strong capitalization, effective risk management, and continued non-oil economic expansion. 

The IMF forecasts gross domestic product growth of 3.5 percent across the GCC this year in 2025, with ����ֱ��, the UAE, Qatar, and Bahrain driving momentum. S&P Global’s latest purchasing managers’ index data also points to robust private sector activity, with ����ֱ�� at 58.1 in March, the UAE at 54.0, and Qatar at 52.0 — all above the neutral 50 mark. 

With resilient lending activity, improving asset quality, and evolving income structures, GCC banks continue to show adaptability in the face of global uncertainty. As governments push ahead with diversification agendas and infrastructure investment, the banking sector is likely to remain a key engine of growth across the region.