Abu Dhabi's CDS Level Declines To 40 Bps, Reflecting Economic Strength And Fiscal Stability

The Credit Default Swaps (CDS) for Abu Dhabi's government decreased from 44 basis points in December 2023 to 40 basis points by March 2024. According to the Central Bank of the UAE's (CBUAE) Quarterly Economic Review for June 2024, Abu Dhabi maintains one of the lowest CDS premiums in the Middle East and Africa. This reflects its robust economy, strong fiscal health, and substantial sovereign wealth funds.

The UAE banking sector has maintained adequate capital levels overall, with capital adequacy ratios exceeding regulatory requirements. The Capital Adequacy Ratio reached 18.0 percent, while the Common Equity Tier 1 (CET-1) ratio improved to 15.0 percent, both increasing by 0.2 percentage points compared to the previous year.

Dubai's CDS also saw a decline from 71 basis points in Q4 2023 to 65 basis points by March 2024. The UAE banking system experienced double-digit deposit growth, contributing to strong liquidity and funding buffers. Liquidity Coverage Ratio and Net Stable Funding Ratio improved to 157.7 percent and 113.6 percent, respectively.

The asset quality ratio of the UAE banking system showed slight improvement due to a reduction in non-performing loans. The Net Non-Performing Loans (NPL) ratio moderated to 2.3 percent, while the overall NPL ratio was at 5.6 percent in Q1 2024. Total provision coverage increased to 94.9 percent, with specific provision coverage at 60.8 percent.

The UAE's lending portfolio expanded by eight percent year-over-year by the end of Q2 this year, primarily driven by domestic credit growth. Loans to individuals and private sector companies saw significant expansion, with domestic credit growing across key areas like mortgages, personal loans, and auto loans.

Abu Dhabi's low CDS levels underscore its economic resilience and fiscal strength within the region. The UAE banking sector remains robust with solid capital adequacy ratios and improving liquidity metrics, reflecting a stable financial environment conducive to continued growth and development in various sectors.

With inputs from WAM