UAE-based banks registered a sharp rise in earnings during the third quarter of 2021, indicating that they are prioritising profitability over growth, according to new research.
Alvarez & Marsal’s (A&M) latest UAE Banking Pulse for Q3 2021 showed that third quarter earnings of the top 10 banks in the country pointed towards increasing profitability, higher return ratios and an overall improved credit outlook.
Co-authored by Asad Ahmed, managing director and head of Middle East Financial Services, and Sumit Mittal, senior director at Alvarez & Marsal, the report examined data of the 10 largest listed banks in the UAE.
It detailed that banks’ operational efficiencies have helped their operating income growth outpace expenses compared to Q2. The ratio decreased to its lowest level since 2018 to 31.8 percent as banks continued to optimise their expenses and overheads.
Ahmed said: “This quarter saw better-than-expected profits. However, the growth in profitability appears uneven, and is leaning more towards the larger banks than the mid-sized banks.
“Sound capital buffers, a stable funding profile, and expected government support should continue to uphold banks’ creditworthiness. However, asset quality may deteriorate over the medium term as forbearance measures are gradually withdrawn.”
He added: “It is expected that the economic boost from Expo 2020, continued economic recovery and digital transformation will continue to drive the UAE banking sector growth. An interesting outcome of the current IPOs would be to see how they impact the earnings of the local banks; it is probable that this may highlight the need for some of the banks to build better capabilities that broaden their fee income capabilities and hence diversify their income streams.”
According to the report, loans and advances (L&A) grew marginally by 0.6 percent, while deposits growth kept pace with last quarter’s growth of 2.1 percent quarter on quarter.
Deposit growth kept pace with the Q2 level of 2.1 percent while loans to deposits ratio decreased marginally across the sector.
There was strong operating income growth, with a 7.4 percent increase in Q3 compared to Q2. However, this growth was partially offset by a 7 percent decrease in net fee and commission income.
First Abu Dhabi Bank (FAB) (up 23.5 percent) reported the highest increase in operating income, driven investment and property related gains.
Operating efficiency improved as operating income grew twice as fast as costs, with five of the top 10 banks witnessing an overall improvement.
Asset quality remained stable in Q3 while total net profit for the banks increased by 14.4 percent compared to Q2.
The country’s 10 largest listed banks analysed in A&M’s UAE Banking Pulse are 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.
Follow us on
