(MENAFN- Khaleej Times) Driven by an upswing in non-interest income and reduced impairment charges, the UAE banking sector has been setting positive trends in profitability, analysts at Alvarez & Marsal said.
Top UAE lenders reported improved profitability due to a steady increase in the total operating income (+15.4 per cent quarter on quarter), an increase in non-core income by 2.4 per cent, and a decline in impairment charges (-11.7 per cent QoQ), the global professional services firm's Banking Pulse report said.
The banking sector witnessed an increase in profitability due to a 15.4 per cent quarter-on-quarter (QoQ) rise in total operating income, an increase in non-core income by 2.4 per cent QoQ, and lower impairment charges (-11.7 per cent QoQ).
Fitch Ratings said in a report that UAE banks performance metrics for 2023 are set to be historically high. The combined net profit reported by Fitch-rated banks (which were 96 per cent of the UAE banking sector assets) was Dh38 billion, which translated into a healthy annualised return on average equity of 20.3 per cent compared with 14.5 per cent in 2022.
“The UAE banks' performance metrics are underpinned by higher interest rates, as reflected by the sector average net interest margin (NIM), which improved by 50 basis points (bps) to a healthy 3.3 per cent in H1 2023 from 2.8 per cent in 2022. The NIM improvement was driven by a high share of current and savings accounts at UAE banks and generally favourable liquidity conditions,” Fitch said.
Asad Ahmed, A&M managing director and head of Middle East Financial Services, said the report showcases a robust third quarter for the UAE banks, buoyed by a higher interest rate environment and a meaningful reduction in impairment charges.“Lenders are benefiting from healthy liquidity conditions supported by high oil prices, foreign capital inflows, and moderate credit demand amid rising interest rates.”
Ahmed said the Central Bank of the UAE (CBUAE) has increased the interest rates in line with the US Federal Reserve with a hike of 25bps in Q3'23.“With inflation still above the target levels, we expect rate cuts only after mid FY'24. However, we believe NIMs of the UAE banks will remain stable for the balance of 2023, before marginal decline in FY'24 post the rate cycle reversion.”
According to the report, while the benchmark interest rates are peaking out, net interest income (NII) (+5.5 per cent) grew strongly for the quarter. Loans and advances (L&A) experienced a 2.4 per cent QoQ growth, predominantly fuelled by corporate/wholesale loans' 2.5 per cent QoQ expansion.
The UAE's 10 largest listed banks analysed in the report include First Abu Dhabi Bank, Emirates NBD, Abu Dhabi Commercial Bank, Dubai Islamic Bank, Mashreq Bank, Abu Dhabi Islamic Bank, Commercial Bank of Dubai, National Bank of Fujairah, National Bank of Ras Al-Khaimah and Sharjah Islamic Bank.
In Q3, deposits mobilisation continued to outpace credit demand. Aggregate deposits grew by 3.9 per cent QoQ outpacing L&A growth of 2.4 per cent QoQ. Consequently, loan-to-deposit ratio decreased 1.1 per cent points QoQ to 75.2 per cent. During Q3'23, eight of the top 10 banks reported an increase in L&A. Total operating income increased by 4.5 per cent QoQ as NII increased by 5.5 per cent QoQ and non-interest income increased by 2.4 per cent QoQ. Both NII and non-interest income contributed to the growth in total operating income.
NIMs (net interest margin) expanded by 8bps as yield on credit increased (+95bps QoQ) to 12 per cent, faster than cost of funds (+52 bps QoQ) which rose to 4.2 per cent in Q3'23. NIM benefited from an overall increase in the benchmark interest rate by the Central Bank of the UAE (+25 bps in Q3'23). Most banks reported expansion in NIMs for the quarter.
Nine out of 10 banks reported an improvement in cost of risk (CoR). Aggregate CoR improved by 10 bps QoQ to settle at 0.6 per cent for Q3'23 as the banks reported lower impairment charges (-11.7 per cent QoQ).
MENAFN23112023000049011007ID1107479270
Legal Disclaimer:
MENAFN provides the information “as is” without warranty of any kind. We do not accept any responsibility or liability for the accuracy, content, images, videos, licenses, completeness, legality, or reliability of the information contained in this article. If you have any complaints or copyright issues related to this article, kindly contact the provider above.