The UAE banking sector remains resilient as banks continue to report a steady performance despite the economic slowdown, according to new research from global professional services firm Alvarez & Marsal.
Its latest UAE Banking Pulse for the second quarter of 2019 revealed that overall operating income across the sector improved marginally from Q1, largely driven by consolidation activity in the sector as the merger of ADCB with Al Hilal Bank and UNB completed.
It said the headline figures also hide a disparity in terms of individual performances, which offset each other to produce only marginal rates of change overall.
The completion of the merger of UNB and Al Hilal Bank into ADCB has removed two independent players from the market. Although the expected pace of M&A activity could slow down, increasing regulatory requirements, digital spending, pressures to reconfigure physical infrastructure and competition are likely to support the case for further consolidation in the sector, the report noted.
The UAE Banking Pulse, which compares the data of the 10 largest listed banks in the UAE, showed that deposits grew at a faster rate (8.5 percent) than loans and advances (7.7 percent) in Q2, which put pressure on margins.
It added that the upward trend in cost of risk continued from Q1 as several banks increased their net loan loss provisions by 15 percent in the quarter.
There were also higher than previous averages impairment charges for some of the banks, with the report saying it is likely that this could be due to the continued pressure on the broader real estate sector, although overall exposure to real estate remained largely unchanged.
It noted that cost of risk is likely to increase further on account of pressure seen across the real estate, hospitality and retail sectors amid softening economic conditions. The report also showed that overall return on equity decreased in Q2 although six of the 10 banks covered reported an increase.
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.
It covers First Abu Dhabi Bank, Emirates NBD, Abu Dhabi Commercial Bank, Dubai Islamic Bank, Mashreq Bank, Abu Dhabi Islamic Bank, Commercial Bank of Dubai, Emirates Islamic Bank, National Bank of Ras Al Khaimah and Sharjah Islamic Bank.
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