UAE bank revenues, lending up despite pressures

Country’s largest listed banks grew their loan books in Q1 2017, says report
Country’s largest listed banks grew their loan books in Q1 2017 (Getty Images)
By Sarah Townsend
Mon 12 Jun 2017 07:14 PM

UAE banks grew their loan books in the first quarter of this year, leading to an overall increase in revenues and a healthier industry outlook, a new report has found.

Lending across the UAE’s largest listed banks grew by 2.13 percent quarter on quarter in the first quarter of 2017 compared to -0.13 percent the previous quarter, according to Alvarez & Marsal’s second UAE Banking Pulse monitor.

The professional services firm compared the quarterly data of the 11 banks – including National Bank of Abu Dhabi (NBAD), Emirates NBD, Abu Dhabi Commercial Bank (ADCB) and Mashreq Bank, among others – and found the majority were taking a balanced approach of growing their loan books and deposit bases simultaneously.

Eight of the top 11 banks had loan to deposit ratios (LDRs) of between 80 percent and 100 percent, the industry’s “green zone”, A&M said.

However, with deposits growing at a faster rate, the net effect has been an overall reduction in LDRs in the first quarter of this year. However, liquidity remains healthy and the cost of risk has decreased slightly from 1.05 percent growth in the preceding quarter to 1.03 percent, the report said.

Crucially, the increase in lending has contributed to an overall increase in year-on-year revenue growth, from -1.75 percent in the fourth quarter of 2016 to 2.31 percent this last quarter.

And, with banks continuing to monitor their cost bases – in some cases delaying investment and hiring decisions – cost-to-income ratios have also shown overall improvement.

Meanwhile, ‘skip’ cases (where borrowers fail to pay back loans) have declined significantly over the last quarter and the quality of banks’ retail portfolios appears to be stabilising.

However, net interest margins (NIMs) continue to remain under pressure, the report said. The impact of this, together with lower yield on credit and increasing cost of funds, has led to a decline in NIMs in the first quarter of 2017.

Dr Saeeda Jaffar, managing director of Alvarez & Marsal’s financial institutions advisory practice, said: “The over-riding theme of the most recent quarter is very much revenue based.

“Banking revenues have risen on the back of increased lending, which has been a key area of focus for the sector and means that liquidity as measured by LDR remains at healthy levels.

“The de-risking of the sector has continued and this is an encouraging trend. UAE banks also continue to deliver returns on equity that are significantly higher than the global average.

“Overall, therefore, the emerging signs of recovery we detected in our inaugural banking Pulse are again visible and recent upgrades of the UAE’s credit ratings are contributing to the growing air of confidence.

“There is every reason to believe we will see this trend continuing during the rest of this year.”

A&M’s previous UAE Banking Pulse published in May, analysed trends from the 12 months of 2016, and found that profitability continued to be under pressure, largely driven by conservative lending.

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