Top 10 UAE banks post 35% Q1 profit surge

The combined net profit of the UAE’s 10 largest banks jumped 35 per cent to Dh18.3 billion quarter-on-quarter in the first quarter of 2023 on the back of “enhanced cost efficiencies and lower impairment charges,” a study by a leading global professional services firm said.

The surge in profitability, underpinned by the country’s robust economic growth and resilient business landscape, was further supported by a rise in non-core income as incremental deposit growth outstripped credit growth for the first time since Q1 2022 amidst monetary tightening. L&A (loans and advances) growth was up by 2.0 per cent quarter-on-quarter (QoQ), while deposits increased by 6.2 per cent QoQ, the study by Alvarez & Marsal said.

“This has been a very strong quarter for the UAE banks. We expect that for the balance of the year, the UAE banking sector will maintain the gains of the first quarter,” said Asad Ahmed, A&M managing director and head of Middle East Financial Services.

The latest UAE Banking Pulse released by A&M shows that the aggregate net interest income (NII) increased marginally by 0.4 per cent QoQ and the overall NIMs (net interest margin) remained stable at 2.8 per cent for the quarter. Overall asset quality showed some improvement with the non-performing loan (NPL) / net loans ratio decreasing by 16 basis points (bps) to 5.4 per cent, said the study.

The UAE banking sector, which has been receiving major fillip from the government’s commitment to regulatory reforms, saw total assets of the top 10 banks increase by 10.6 per cent in 2022 year-on-year to $898.89 billion driven by strong growth in deposits, loans, and advances, KPMG said in its UAE Banking Perspectives report.

The UAE banking sector, according to analysts, benefits from large pools of capital and high net-worth customers on the back of a vibrant economy and a favourable business environment that continue to attract significant amounts of foreign investments.

According to the Central Bank of the UAE, the nation’s economy is projected to grow 3.9 per cent in 2023. The foreign direct investment flow into the UAE in 2022 was estimated at $22 billion by the Institute of International Finance.

“Stable NIMs, improving cost efficiencies, and lower impairments have led to record profits for the UAE banks in the current quarter, although we witnessed a mixed performance by some banks on the margin front,” said Ahmed.

“A modest reduction in economic growth is expected on the back of the agreed oil output cuts and higher interest rates. Higher margins should drive bank profitability though slightly tempered by an uptick in provisioning – the latter tends to accompany a rate increase. The UAE banks are well provided for and sufficiently capitalized to maintain capital adequacy ratio (CAR) levels, well above regulatory requirements,” he added.

Overall, top UAE lenders reported higher profitability, and return on equity (RoE) improved by 5.9 per cent points QoQ to 19.3 per cent, whereas return on assets (RoA) increased to 2.2 per cent marking a return to new levels not seen for the last four years.

The country’s 10 largest listed banks analysed in A&M’s study are First Abu Dhabi Bank (FAB), Emirates NBD (ENBD), Abu Dhabi Commercial Bank (ADCB), Dubai Islamic Bank (DIB), Mashreq Bank (Mashreq), Abu Dhabi Islamic Bank (ADIB), Commercial Bank of Dubai (CBD), National Bank of Fujairah (NBF), National Bank of Ras Al-Khaimah (RAK) and Sharjah Islamic Bank (SIB).

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