UAE banks to see less volatility in 2021

The UAE’s banking sector is expected to remain less volatile in 2021 compared to last year, professional services firm Alvarez & Marsal (A&M) said in its latest UAE Banking Pulse report.

Asad Ahmed, managing director of Alvarez & Marsal, said the anticipated economic recovery in 2021 should support the operating environment and the fundamentals of banks in the UAE.

“Profitability in the sector has shown signs of vulnerability with declining interest income and increased provisioning weighing on the net profit. However, we expect 2021 to be less volatile for the UAE banking sector compared to 2020,” he said.

Events such as Expo and a gradual economic improvement are expected to be the key catalysts for the sector in the near term, Asad said.

“However, post the end of the loan forbearance period in June 2021, banks might have to book additional provisions which could be detrimental to their profitability and asset quality. Interest rates are expected to remain low in the foreseeable future, which could impact income stream for the banks,” Asad said.

“In terms of the region and the UAE, 2021 will continue to be a year which does not produce stellar results, but hopefully next year onwards we will see the numbers turn around,” he added.

However, Alvarez & Marsal warned that banks might witness deterioration of their asset quality after the completion of Central Bank of the UAE’s deferral programme in June 2021.

Top 10 UAE banks aggregate annual net profits declined by 38.3 per cent in 2020 on the back of lower operating income and increased provisions.

Total loan-loss provisions jumped 79 per cent year-on-year to Dh28.1 billion ($7.65 billion) for the top 10 UAE banks last year, as a challenging economic environment and banks’ exposure to several high-profile cases boosted impairments, it said.

— waheedabbas@khaleejtimes.com