Judging by impressive recent financial results in the United Arab Emirates, it seems the worst is over. However, it would be a mistake to interpret the recent trend as a return to another benign period for UAE banks. Some fundamental fault-lines still remain.
UAE has transformed itself in the past 40 years. The World Economic Forum’s Global Competitiveness Report 2011/12 classifies UAE as an innovation-driven economy – the only country in the Organisation of Petroleum-Exporting Countries to enjoy that status. The not-so-good news: in 2011, ratings agency Standard & Poor’s downgraded UAE's "banking industry country risk assessment", citing "economic imbalances" and "credit risk in the economy". While the country has made significant progress in the past four decades, the agenda is far from finished. The challenge is the continuation of competitiveness-enhancing structural reforms to reduce the risk of asset bubbles and put economic development on a more stable footing.
