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The combined net income of the UAE’s 10 largest listed banks increased 9.3% q-o-q to AED 20.8 bn in 1Q 2024, despite static interest rates, according to Dubai-based management consultancy Alvarez & Marsal’s UAE Banking Pulse report (pdf). Growth was driven by an 18.9% q-o-q increase in non-core income, in addition to reduced operational costs and impairment charges.
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The 10 largest banks in terms of assets: First Abu Dhabi Bank (FAB), Emirates NBD, Abu Dhabi Commercial Bank, Dubai Islamic Bank, Mashreq, Abu Dhabi Islamic Bank, Commercial Bank of Dubai, RAK Bank, Sharjah Islamic Bank, and the National Bank of Fujairah.
Total net interest income fell 1.1% q-o-q across the board as the Central Bank of the UAE left interest rates unchanged following the US Federal Reserve’s decision, maintaining its overnight deposit rate at 5.40% and the overnight lending rate at 5.90%, the report said.
REMEMBER- The Central Bank of the UAE mirrors the Fed’s interest rate policies, as the AED is pegged to the USD.
Loans and advances (L&A) increased 3.4% q-o-q, reaching their highest level in the post-covid-19 period, mainly fueled by corporates and wholesalers, who accounted for 56.7% of the total loan book, the report said. Abu Dhabi Commercial Bank and FAB led the pack with the highest growth rates in loans among the 10 banks, showcasing a 5.4% and 5.0% q-o-q increase in L&A.
Deposits outpaced L&A in growth, improving 5.1% q-o-q as almost all banks recorded increases in deposits. RAK Bank logged the highest increase in deposits during the period, with a 9.9% q-o-q increase. Sharjah Islamic Bank was the only outlier, with a 0.3% q-o-q decrease in deposits.
All banks improved cost efficiency, with our friends at Mashreq reporting a 9.1% q-o-q drop in their cost-to-income ratio.
The overall cost of risk improved to 0.41% during 1Q, as banks managed a 47.9% q-o-q decrease in aggregate impairment charges amounting to AED 2.0 bn. Emirates NBD witnessed the highest reversal in impairment charges by overturning AED 866 mn in 1Q 2024. Abu Dhabi Commercial Bank, Abu Dhabi Islamic Bank, RAK Bank, Sharjah Islamic Bank, and National Bank of Fujairah saw positive q-o-q shifts in cost of risk, while Dubai Islamic Bank, Mashreq, and Commercial Bank of Dubai, reported declines.
Profitability was weighed by a heavy reliance on time deposits, which constituted 44.4% of their total deposits. However, a decrease in total interest expenses signaled better asset repricing during the quarter.
A&M expects banks’ profitability to be impacted by the CBUAE cutting interest rates in 2H 2024 in line with the Fed, but not in the short term.
