UAE Banking Pulse report reveals that operating income and net interest margins at UAE banks were significantly higher in Q2
Profitability among the UAE's biggest banks continued to improve during the second quarter of 2018, according to a new report.
Global professional services firm Alvarez & Marsal (A&M) said in its latest UAE Banking Pulse that operating income and net interest margins were significantly higher than in the previous quarter.
Comparing the data of the 10 largest listed banks in the UAE, the report said deposits grew faster than loans & advances, resulting in a slightly reduced average loan-to-deposit (LDR) ratio for Q2.
Despite this, eight of the top 10 banks remained in the LDR “green zone” of between 80-100 percent.
The report said operating income growth increased significantly (by 2.25 percent) in Q2, reversing the 1.37 percent decline of the previous quarter. This was driven by an increase in interest income, which grew by 3.11 percent in Q2.
Net interest margin (NIM) increased at a higher rate than in Q1 but the increase in operating income was not sufficient to reduce the cost-to-income ratio, caused by an increased level of sales and general and administrative expenses.
Cost of risk was marginally lower as UAE-based banks continued to reduce their loan loss provisions while return on equity (ROE) increased due to a decrease in cost of risk and an increase in operating income.
Alvarez & Marsal’s report uses independently-sourced published market data and 16 different metrics to assess the banks’ key performance areas including size, liquidity, income, operating efficiency, risk, profitability and capital.
The country’s 10 largest listed banks analysed in the report were First Abu Dhabi Bank, Emirates NBD, Abu Dhabi Commercial Bank, Dubai Islamic Bank, Mashreq Bank, Abu Dhabi Islamic Bank, Union National Bank, Commercial Bank of Dubai, National Bank of Ras Al-Khaimah and the National Bank of Fujairah.
The report's lead author, Dr Saeeda Jaffar, said: “The second quarter saw good, steady performance by the UAE’s leading banks, with no major surprises or causes for concern.
"The most striking feature of the sector’s overall performance was the rise in operating income, the result of increased lending activity and a higher return on credit. This would point to increasing levels of confidence being displayed by the banks, which is also reflected by the reduced cost of risk, continuing the trend we have seen since the beginning of 2018.
"Overall, the sector continues to perform well. Profitability is maintaining its upward trend while growing returns on equity and liquidity remain at healthy levels. It has been a good first half for the sector and signs indicate these trends will continue in the second half.”