UAE's four largest banks' rise in profitability was largely driven by higher net interest income and lower provisions
The UAE’s four largest banks have seen higher profits in Q2 this year, with a combined net profit of AED8.0 billion ($2.2 billion), up 21% year on year, according to the Investors Service report by financial services firm Moody's.
Profitability for the banks, which include First Abu Dhabi Bank, Emirates NBD, Abu Dhabi Commercial Bank and Dubai Islamic Bank, is likely to continue into 2019, the data showed.
The rise in profits was largely driven by higher net interest income and lower provisions.
"We expect core profitability for the large UAE banks to remain broadly stable over the next 12-18 months, as interest earnings hold steady at current levels, and as the decline in provisioning charges reverses due to softening business confidence," said Nitish Bhojnagarwala, Vice President, Senior Credit Officer at Moody's.
The banks’ net interest income increased 10% compared to Q2 2017, as they repriced loans following a hike in interest rates.
Furthermore, they witnessed a 27% year on year drop in loan loss provisions, as they were permitted to take expected future credit losses from their capital, the report said.
While operating costs rose 3% quarter on quarter and 8% year-on-year, mainly due to investments in technology aimed at bettering operational efficiency, the overall cost to income ratio was stable at 30% in Q2.
As technology investments begin to yield results, the cost is likely to remain stable over the next 12-18 months.
In addition, Moody's report showed a rise in deposits and capital during the second quarter of 2018.