The decline in interest rates will lead to banks increasing loans to individuals and companies, and looking for sectors that were not addressed before to finance them, leading to increased competition among banks to attract depositors and grant loans, which is in the interest of customers.
They pointed out that banks have already started, during the last period, since the reduction of interest rates last August, offering many offers to dealers, to buy banking products, and obtain financing at low interest rates, sometimes up to (0%).
They pointed out that the decline in the interest rate will have a limited impact on the profitability of banks, as they tend to reduce their operating costs, while adopting digitization processes.
The central bank cut its key interest rate for the second time on Wednesday, in less than two months, after a similar cut in August by 25 basis points. Moody's said that 75% of loans granted by UAE banks are variable-rate and are adjusted at specific intervals.
Profitability of banks
In detail, the banking expert, Awatif Harmoudi, said that the decline in interest rates will not affect the profitability of banks, in the coming period, pointing out that banks tend to increase loans directed to individuals and companies when the interest rate falls, and therefore the total interest income from the grant Loans will rise. "When the interest rate falls, banks are always looking for other channels to get them revenue, and some may go to finance economic sectors not addressed before," she said, stressing that this will increase competition among banks to attract depositors and to grant loans. Banks are the biggest beneficiaries, she said.
Banks will also tend to cut costs as part of their efforts to maintain a high profit margin.
Limited impact
In turn, the banking expert, Ahmed Arafat, that banks will be affected by the decline in the interest rate will be limited, because they depend in their profits on the difference between the interest rate of deposit with the Central Bank and the interest rate of loans granted, which is known as the "profit margin" of the bank will not It is greatly affected by the low market profit rate. He explained that competition between banks in the country will increase, in the coming period, as banks will offer attractive offers to depositors and lenders, stressing that banks have started, during the last period, offering many offers to dealers to buy products, and obtain financing at low interest rates, sometimes up to (zero%). Arafat stressed that digitization, which is being carried out by banks in full swing, contributes significantly to reduce the operating costs of banks, which will help them to maintain their profit margin. He stressed that despite the current interest rate decline, it will not affect the levels of deposit in UAE banks, especially since the return received by depositors is good at the moment, and it is safe and risk free.
Variable yield loans
Moody's said in a report that 75% of loans granted by UAE banks are variable-rate and are adjusted at fixed intervals, so interest on such loans will decline when interest rates are adjusted. She pointed out that the decline in interest rates will reduce the cost of banks, and the cost of time deposits will decline gradually, and will also decrease the increase in provisions for loans to banks.
Moody's: There is no decline in the rating of major real estate companies in the UAE
Moody's has confirmed that major real estate companies in the UAE will not decline their ratings, especially in light of the good liquidity they have, but the main challenge facing them is to increase the market supply. Rehan Akbar, a credit analyst at the company, said big real estate companies, with their liquidity, would not be affected by their valuation, including Emaar Properties and Emaar Malls, but the impact could affect small companies. Alexander Bergese, an analyst at the company, predicted that Dubai banks would be closer to revitalizing mergers in the sector.