UAE - Mubasher: The 2020 shocks would continue to have an impact on the UAE banking sector and economy during 2021, according to S&P Global Ratings expected in its report 'UAE Banking Sector 2021 Outlook: A Long Recovery Road Ahead'.

The UAE's gross domestic product (GDP) growth is forecast to rebound in 2021 after witnessing a sharp recession in 2020 due to the coronavirus (COVID-19) pandemic and low oil prices, the rating agency referred.

The rating agency predicted an around 8% contraction in real GDP in 2020 amid low oil prices and a sharp decline in tourism and real estate activity.

The UAE's real GDP is predicted to return to the 2019 levels by only 2023, as key sectors, namely real estate, hospitality, and retail, would remain under pressure in the upcoming 12 months.

Although the country's objective to vaccinate 50% of its population by the end of the first quarter (Q1) of 2021 would have a positive effect, additional virus waves and mutations impose risks on the economy.

As the UAE starts observing the COVID-19 economic impact and the Central Bank of the UAE (CBUAE) gradually lifts its facilities in the second half (H2) of 2021, the banks’ asset quality is forecast to suffer and the cost of risk to further rise.

Due to the continued low interest rates, the UAE banks' profits will remain low in 2021, and a few of them could incur losses. 

"We could lower the ratings if asset quality deteriorated significantly alongside increasing pressure on the operating environment," the rating agency referred in its report.