The UAE’s banking sector profitability improved in the second quarter of 2021, according to professional services firm Alvarez & Marsal’s latest UAE Banking Pulse report.
The report examined the country’s ten largest banks, finding that overall loans and advances growth turned positive, while deposits further increased.
The aggregate loans and advances for the top ten UAE banks increased by 1.9 percent quarter-on-quarter and deposits increased by 2.1 percent over the period. Deposit growth outpaced loans at most banks through the second fiscal quarter of 2021 as consumers and businesses cut spending amid economic uncertainty, bolstering already robust liquidity.
Operating income increased 2.8 percent quarter-on-quarter, supported by the reduced cost of funding and higher investment income. Meanwhile, aggregate net interest margin remained largely stable at 2.05 percent in the second quarter. It remained flat as industry-wide credit yields continued to stay suppressed, while cost of funding declined marginally.
Return on equity hit 10.9 percent, up from 9.8 percent, and total net income increased 11.5 percent quarter-on-quarter.
For asset quality, aggregate quality stabilised after deteriorating for six consecutive quarters, settling at 6.2 percent.
“Improvements in asset quality are helping to drive the UAE banking sector turn around. We look forward to this trend continuing,” said Asad Ahmed, managing director and head of Middle East financial services, who co-authored the report.
“The US Fed’s commitment to maintaining the current low level of interest rates is expected to keep domestic banks’ income streams under pressure. We believe focusing on significant efficiency improvements, continuing to adopt technology, either organic or in partnership with fintechs, and actively managing non-performing portfolios are critical to driving improvements forward.”
The country’s ten largest listed banks analysed in A&M’s UAE Banking Pulse were First Abu Dhabi Bank (FAB), Emirates NBD (ENBD), Abu Dhabi Commercial Bank (ADCB), Dubai Islamic Bank (DIB), Mashreq Bank (Mashreq), Abu Dhabi Islamic Bank (ADIB), Commercial Bank of Dubai (CBD), National Bank of Fujairah (NBF), National Bank of Ras Al-Khaimah (RAK) and Sharjah Islamic Bank (SIB).
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