The price rise in Abu Dhabi’s residential real estate does not pose a serious risk to the emirate’s banks as the industry is not reliant on leverage but backed by stinger fundamentals, said a report.

According to the latest Fitch Ratings, the performance of banks has improved in line with the strengthening of the local and Dubai economies.

Non-performing loans (NPLs) of Abu Dhabi’s banks declined to a five-year low and provisioned at a six-year high, although asset quality issues remain, the report was quoted as saying in the Emirates 24/7 newspaper.


"Capital adequacy is high, at 17.8 per cent at end-March. Fitch does not consider that surging residential real estate prices pose a serious risk to banks. Unlike the 2008 boom, the current run-up in prices is not reliant on leverage and is backed by stronger fundamentals,” it said.

“The authorities are also more attuned to the risks from rising house prices. Rising rents and a buoyant economy are pushing up inflation, which is forecast to average five per cent in 2016," Fitch said in a note.



Abu Dhabi's residential property prices increased 17 per cent in the first half of the year,  the report quoted JLL as saying in its latest Abu Dhabi Real Estate Market Overview.



Meanwhile, Abu Dhabi’s net foreign assets are estimated to have increased to 178 per cent of GDP at the end of last year, from 151 per cent of GDP a year earlier, sufficient to cover five years of government spending, said the report.

The emirate’s GDP was estimated to have grown 4.8 per cent to Dh953.24 billion ($259.4 billion) last year, while its external sovereign balance sheet was estimated to be the second-strongest of all countries rated by Fitch, behind Kuwait, it said.

Fitch affirmed Abu Dhabi's long-term foreign and local currency Issuer Default Ratings (IDR) at 'AA' with stable outlooks, it added.