The UAE economy was projected to face prosperity in 2020 following the official date for the Expo, however, the global pandemic deemed many plans redundant. Some say this was a product of the prolonged lockdown, though a more realistic reason could be due to the financial uncertainty lingering amongst people.
Accordingly, banking was one of the most affected sectors. The International Monetary Fund had predicted a fall of almost 3.5% in the GDP of the UAE due to the pandemic; turns out, the fall almost doubled the percentage.
This was one of the factors directly affecting bank earnings. For instance, the biggest bank in the UAE, First Abu Dhabi Bank had a 19.3% drop in the quarterly profit. Due to this, the central bank’s Targeted Economic Support Scheme introduced interest-free funds for banks, which majorly supported UAE based banks.
To motivate people to take loans, banks used the strategy of lowering the interest rates and increasing the number of years for repayment. Despite the proper strategy to attract lots of people, some banks have started to show losses.
It is projected that the banks will realize the impact of 2020’s shockwaves in the first half of 2021 and then gradually make a recovery in the second half of 2021. Also, it is expected for people to be motivated to take loans in 2021 because of the strategy used by banks; a change for them to have increased growth. Yet, the low-interest margins will lower the banks’ profitability.
That being said, although the banking situation may not be the most profitable in the current economic state, it is said that the economy can only go up from here. This means profitability will increase in the near future and loans will soon become more accessible than ever.
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