The combined net income of the UAE’s 10 largest listed banks fell 5.5% q-o-q to AED 20.3 bn in 3Q 2024, on the back of higher impairment charges, according to Dubai-based management consultancy Alvarez & Marsal’s UAE Banking Pulse report (pdf). Net interest income rose 1.5% q-o-q, but growth was sluggish, driven by a 50 bps reduction in the CBUAE benchmark interest rate, and a drop in the loan-to-deposit ratio (LDR).

REMEMBER- The CBUAE — like other GCC central banks whose currencies are pegged to the USD — followed in the US Federal Reserve’s footsteps and cut the overnight deposit rate by 50 basis points in September, from 5.40% to 4.90%.

Loans and advances (L&A) increased 3.5% q-o-q. Retail lending led the way with a 4.9% q-o-q increase, outpacing corporate/wholesale lending, which grew by 3.2% q-o-q. Corporate lending made up 55.5% of the loan book. Abu Dhabi Commercial Bank and Emirates NBD led the pack with the highest growth rates in loans among the 10 banks, with a 7.9% and 4.9% q-o-q increase in L&A.

Deposits outpaced L&A in growth, improving 3.9% q-o-q, with almost all banks recording increases in deposits. RAK Bank logged the highest increase in deposits during the period, with a 10.6% q-o-q increase.

Six of the 10 banks saw cost efficiencies take a hit, with the aggregate cost-to-income ratio rising by 99 bps to 29%. This increase was driven by a 7.1% q-o-q rise in operating expenses, outpacing the 3.5% q-o-q growth in operating income.

The overall cost of risk worsened to 0.6% during 3Q, as banks managed a 124.9% q-o-q increase in aggregate impairment charges amounting to AED 2.9 bn. Emirates NBD alone reported 900 mn in impairment charges.

Profitability was weighed by a heavy reliance on time deposits, which constituted 44.1% of their total deposits, up 5.6% q-o-q.

A&M expects banks’ profitability to be impacted by further rate cuts from the CBUAE, despite reduced borrowing costs and strengthening loan growth. It also expects more loan refinancing and restructuring throughout the year.

The consultancy remains optimistic: “UAE banks’ management guidance indicates optimism on loan growth while taking a cautious stance on the asset quality front with impairment cost outlook mostly indicating a conservative stance,” A&M said.

The 10 largest banks in terms of assets: First Abu Dhabi Bank (FAB) with AED 1.2 tn, Emirates NBD (ENBD) at AED 956 bn, Abu Dhabi Commercial Bank (ADCB) at AED 638.8 bn, Dubai Islamic Bank (DIB) at AED 329.2 bn, Mashreq (MASQ) at AED 254.4 bn, Abu Dhabi Islamic Bank (ADIB) at AED 222.6 bn, Commercial Bank of Dubai (CBD) at AED 140.2 bn, RAK Bank at AED 83.9 bn, Sharjah Islamic Bank (SIB) at AED 74.8 bn, and National Bank of Fujairah (NBF) at AED 58.5 bn.

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