Moody's: United Arab Emirates banking outlook negative

The fundamental credit outlook for the banking sector of the United Arab Emirates is negative, reflecting growing pressures in the operating environment, which Moody's Investors Service said it believes will weaken the financial fundamentals of UAE banks going forward.

Moody's said that its negative outlook for the UAE banking system expresses the rating agency's view on the likely future direction of fundamental credit conditions in the industry over the next 12 to 18 months.

It does not represent a projection of rating upgrades versus downgrades.

Key factors underlying Moody's negative outlook for the UAE banking system include the growing potential for a deterioration in asset quality in light of the property market correction, which began having an impact in Q4 2008.

"Moody's is mainly concerned about the loans to 'opportunistic' developers that have been extended over the past four to five years following Dubai's decision to allow freehold ownership for foreigners in 2003," explained John Tofarides, a Moody's analyst and author of this report.

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