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The combined net income of the UAE’s top 10 listed lenders grew 2.9% q-o-q to AED 21.5 bn in 2Q 2024, according to Dubai-based management consultancy Alvarez & Marsal’s UAE Banking Pulse report (pdf). This increase was driven by a 2% q-o-q increase in net interest income, which was driven by a positive loan-to-deposit ratio, and lower impairment charges, which fell 35.4% q-o-q.
REMEMBER- The CBUAE maintained its benchmark deposit rate at 5.40% and the overnight rate at 5.90% throughout the first half of the year, in line with the Fed’s interest rate policies due to the AED being pegged to the USD.
The 10 largest banks in terms of assets were First Abu Dhabi Bank (FAB), Emirates NBD, Abu Dhabi Commercial Bank (ADCB), Dubai Islamic Bank (DIB), our friends at Mashreq, Abu Dhabi Islamic Bank (Adib), Commercial Bank of Dubai (CBD), RAK Bank, Sharjah Islamic Bank, and the National Bank of Fujairah.
Total non-interest income dropped 2.9% q-o-q, with FAB and Emirates NBD seeing the biggest decline.
Loans and advances grew 3.2% q-o-q, with retail lending climbing 8% q-o-q — representing 25.1% of the total loan book — making it the top driver for overall loan growth.
On the flip side, deposit growth was sluggish, inching up 0.4% q-o-q, partly due to a 2.5% drop in time deposits. FAB posted a 4.7% q-o-q decline in deposits, while CBD led in deposit growth, with an increase of 10.5% q-o-q.
Cost efficiencies took a hit for six of the 10 surveyed banks, with the aggregate cost-to-income ratio easing to 28.1%, up by 19 basis points q-o-q on the back of a 1% q-o-q increase in operating expenses, surpassing the 0.4% q-o-q increase in operating income.
The cost of risk improved in 2Q, reaching a multi-year low of 0.3% as aggregate impairment charges fell 35.4% q-o-q to AED 1.3 bn. Our friends at Mashreq saw the second steepest improvement in cost of risk by 42 bps, second to CBD which saw a 56 bps improvement. Meanwhile, ADIB posted the biggest deterioration in cost of risk, increasing by 55 bps in 2Q 2024.
Looking ahead: “Banks are expected to take some precautionary provisioning as asset quality remains sensitive at the peak of the interest rate cycle,” said Asad Ahmed, A&M managing director and head of Middle East financial services. “Banks are also expected to emphasize the growth of non-interest income as net interest margins come under some pressure with the rate cuts,” Ahmed said, adding that banks could refocus their efforts on transaction banking.
Reaping the rewards of investments in digitization? A&M sees UAE banks showing “increased benefits” from their investments in digital initiatives, leading to improved cost efficiency.
