Sign in
Higher interest rates helped boost the aggregate net income of the UAE’s 10 largest listed banks by 54.1% y-o-y to AED 76.9 bn during 2023,according to Dubai-based management consultancy Alvarez & Marsal’s UAE Banking Pulse report (pdf). Total net interest income grew 27.6% y-o-y across the board as the Central Bank of the UAE followed the US Federal Reserve’s lead with interest rate hikes, the report said.
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 National Bank of Fujairah.
REMEMBER- The Central Bank of the UAE mirrors the Fed’s interest rate policies, as the AEDis pegged to the USD.
Banks were able to boost profitability on the back of a 100 basis point (bps) increase in the Emirates Interbank Offered Rate (EIBOR), despite fewer loans relative to deposits, A&M noted.
Almost all banks improved cost efficiency, with our friends at Mashreq reporting an 8.4% y-o-y drop in their cost-to-income ratio, followed by First Abu Dhabi Bank (FAB) and RAK Bank also penciling strong improvements. Dubai Islamic Bank was the only outlier, with a 15.7% y-o-y increase in cost to income on the back of investments in growth and digitization.
Loans and advances increased 9% y-o-y, mainly fueled by corporates and wholesalers,who accounted for 57.4% of the total loan book, the report said. Mashreq led the pack with the highest growth rate in loans and deposits among the 10 banks, showcasing a 22.2% y-o-y increase in loans and advances (L&A) and a 28.5% y-o-y increase in deposits. This growth came primarily through the wholesale and retail sectors.
Corporate and wholesale lending increased 11.8% y-o-y, the report reads. Overall retail lending also grew 10.9% y-o-y, while government lending slowed 3.6% y-o-y.
The overall cost of risk improved 0.73% y-o-y during 2023, as banks managed a 19.8% decrease in aggregate impairment charges amounting to AED 13.7 mn. Mashreq witnessed the highest reversal in impairment charges by overturning AED 1.4 mn in 2023. Emirates NBD, Dubai Islamic Bank, and Sharjah Islamic Bank saw positive y-o-y shifts in cost of risk, while RAK Bank and Abu Dhabi Commercial Bank reported declines.
Profitability was weighed by a heavy reliance on time deposits — which constituted 43% of their total deposits and put a slight squeeze on expenses — and an increase in total interest expenses that offset some of the growth in interest income.
A&M expects banks to maintain profitability despite the CBUAE cutting interest rates in 2H 2023 in line with the Fed.
