UAE’s top 10 banks post good second quarter rebound – News
The UAE Central Bank’s credit sentiment survey in Q2’21 notes strong and continued domestic credit demand across all sectors of the economy, indicating that a dynamic recovery is on track .
The UAE’s top ten banks posted a good rebound in profitability and balance sheet metrics in the second quarter, with return on equity (RoE) reaching its highest level of 10.9% for the first time since 2019.
In the last quarter of 2019, RoE was 13.3% in Q4’19. As economic conditions continue to improve, the top 10 banks could post RoE to fourth quarter 2019 levels, leading professional services firm Alvarez & Marsal said in its “UAE Banking Pulse for Q2 2021”.
The report states that the banks examined recorded a 2.8% increase in quarter-over-quarter (QoQ) operating income coupled with a decrease in impairment charges of 9.3% QoQ, which were the main drivers of profitability growth.
Co-authored by Asad Ahmed, Managing Director and Chief Financial Officer Middle East, and Sumit Mittal, Senior Director at Alvarez & Marsal, UAE Banking Pulse, examines data from UAE’s top 10 listed banks, comparing the second quarter 21 results versus Q1’21 results.
“Improving asset quality is helping revive the UAE banking sector. We look forward to this trend continuing, ”said Ahmed.
The UAE Central Bank’s credit sentiment survey in Q2’21 notes strong and continued domestic credit demand across all sectors of the economy, indicating that a dynamic recovery is on track . However, the US Fed’s commitment to keep interest rates low today should keep domestic banks’ income streams under pressure, Ahmed said.
“We believe that focusing on significant efficiency improvements, continuing to adopt technology, either organically or in partnership with fintechs, and actively managing underperforming portfolios are key to driving improvements forward,” he said. -he declares.
The 10 largest listed banks analyzed in the report 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 the Islamic Bank of Sharjah.
Loans and advances increased 1.9% qoq, after declining for three consecutive quarters, with the Dubai mortgage market showing strong signs of improvement as the number of mortgage issues nearly doubled between December 2020 and June 2021, according to the report.
In the second quarter, deposit growth outpaced loans at most banks as consumers and businesses cut spending amid economic uncertainty, bolstering already strong liquidity.
Operating profit increased 2.8% quarter on quarter, supported by lower financing costs and higher investment income. Major banks, including FAB and DIB, reported a substantial increase in their trading and foreign exchange revenues, which supported overall operating income.
The overall net interest margin (NIM) remained broadly stable at 2.05 percent in Q2’21 as industry-wide credit yields continued to remain low as the cost of funding declined. slightly decreased. While ADCB, CBD and NBF reported an expansion of the NIM of 10 to 20 basis points, the remaining banks remained largely unchanged.
The asset quality of these banks has also stabilized overall after deteriorating in 2020. Three of the ten largest banks in the UAE, including Emirates NBD, Mashreq and RAK Bank, have higher coverage ratios 100 %. “Banks have shown that they are better positioned than ever before to manage stress on their balance sheets as capital buffers increase, recoveries improve and profitability improves. The decline in bank provisioning underscores an improvement in the credit outlook for the sector, ”the report said. – [email protected]