Boston, MA -- (SBWIRE) -- 11/08/2012 -- BMI View: We expect the ongoing recovery in the UAE banking sector to gradually gather steam in 2012, although stress that our forecasts continue to see the aggregate balance sheet of the industry expanding by only 8.0% this year. The main risk centres on the increasingly uncertain policy environment facing the industry. Indeed, we expect profitability to be undermined if banks are forced to cap the interest rates they charge on credit cards, or if they are required to write off a share of their personal loan books as a result of the government's ongoing efforts at reducing the debt burden of UAE nationals. Following a relatively lacklustre 2011, we expect the UAE banking sector's recovery to gradually gather steam in 2012, although caution that underlying profitability may take a hit due to the introduction of a recent spate of new regulations by the central bank. The aggregate balance sheet of the retail banking industry expanded by only 3.5% in 2011, marking the slowest pace of growth in our time series dating back to 2000. At the same time, provisioning for non-performing loans continued to trend higher (coming in at AED55.3bn (US$15.1bn) in December, compared to AED44.3bn in the same month a year prior) amidst the multi-year decline in the real estate sector and ongoing concerns surrounding potential debt restructuring agreements by several prominent government related entities (see our online service, 10 April, 'Debt: GREs Out Of The Woods?'). Going forward, we are projecting the sector's balance sheet to expand by 8.0% in 2012, with loan growth projected to remain relatively muted at 5.0%.

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