The UAE banking sector's strong capitalisation should make its current challenges manageable despite rising impairments and difficult operating conditions, a Fitch Ratings agency report said.

Fitch believes that fresh government support for the sector is less likely to be required.

"The first half of 2010 has been difficult for the UAE's banks, with rising retail and corporate impairments, debt restructuring at Dubai government-related entities (GREs), reduced lending appetite and stubbornly high loan/deposit ratios resulting in some stagnation in the sector," says Robert Thursfield, a Dubai-based director in Fitch's Financial Institutions team.

"The sector's capitalisation remains sound and should be sufficient to absorb the likely impact of the well-publicised problems of certain Dubai GREs and the Saudi corporates Saad and Al Gosaibi,"  he said. -Reuters