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Banks (Finance)

UAE Banks Report Higher Profitability in Q3

Strategic Insights

— 2 min read

UAE banks have reported higher profitability in the third quarter (Q3) of 2022, driven by stronger economic activity, higher interest rates, and elevated oil prices. According to the latest UAE Banking Pulse for Q3 released by Alvarez & Marsal (A&M), the top 10 UAE banks have seen a significant improvement in return on equity (RoE) and return on assets (RoA). The report notes that while interest rate increases have positively impacted banks, the impact on borrowing is more subdued, despite positive economic activity in the GCC.

Key Takeaways:

  • The top 10 UAE banks have reported a 1.3 percent quarter-on-quarter (QoQ) increase in RoE to 15.1 percent in Q3.
  • Return on assets (RoA) improved by 0.1 percent QoQ to 1.7 percent during the quarter.
  • Aggregate Net Interest Income (NII) surged by 12.2 percent QoQ, and Net Interest Margins (NIMs) improved by 18bps QoQ, supported by higher credit yield on the back of rising benchmark rates.
  • Non-performing loans (NPL)/ L&A fell by 0.2 percent to 5.5 percent during the quarter.
  • L&A growth was marginally up by 0.7 percent QoQ, while deposits increased by 5.2 percent QoQ.
  • First Abu Dhabi Bank (FAB) reported the highest increase in deposits of 15.1 percent QoQ.
  • The loan-to-deposit ratio (LDR) slipped 3.5 percent QoQ to 78.9 percent.
  • The operating income grew significantly by 8.3 percent QoQ, primarily driven by increased NII for the UAE banks.
  • Cost of funds (CoF) increased by 66bps QoQ at 1.9 percent in Q3'22, as interest expense increased by 61.1 percent QoQ on back of higher rates.
  • Operational cost efficiencies improved for the top ten UAE banks for the second consecutive quarter.
  • The cost-to-income (C/I) ratio improved by 1.0 percent QoQ to reach 30.5 percent.
  • Cost of risk (CoR) deteriorated by 19bps QoQ, with higher provisions of 27.8 percent QoQ.
  • Six out of ten banks reported increased provisions for impairments following an increased cost of risk.

Statistics:

  • RoE: 15.1 percent (1.3 percent QoQ increase)
  • RoA: 1.7 percent (0.1 percent QoQ increase)
  • Aggregate NII: 12.2 percent QoQ increase
  • NIMs: 18bps QoQ improvement
  • NPL/L&A: 5.5 percent (0.2 percent QoQ decrease)
  • L&A growth: 0.7 percent QoQ increase
  • Deposits: 5.2 percent QoQ increase
  • LDR: 78.9 percent (3.5 percent QoQ decrease)
  • Operating income: 8.3 percent QoQ increase
  • CoF: 1.9 percent (66bps QoQ increase)
  • C/I ratio: 30.5 percent (1.0 percent QoQ decrease)

Sources:

  • "UAE Banking Pulse for Q3" by Alvarez & Marsal (A&M)
  • TradeArabia News Service Copyright 2022 Al Hilal Publishing and Marketing Group Provided by SyndiGate Media Inc. (Syndigate.info)

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