UAE lenders’ profits rises by 35% in Q1

The banking sector in the UAE has achieved a remarkable 35 percent growth in net profits, reaching 18.3 billion dirhams ($4.98 billion) in the first quarter of 2023, according to global professional services firm Alvarez & Marsal. This surge in profitability can be attributed to enhanced cost efficiencies, reduced impairment charges, and increased non-core income.

Alvarez & Marsal’s Managing Director and Head of Middle East Financial Services, Asad Ahmed, stated that the UAE banks have had a robust quarter and predicted that the sector will sustain this positive momentum throughout the year. Net interest margins (NIMs) remained stable at 2.8 percent during the first quarter, which, combined with improved cost efficiencies and lower impairments, resulted in record profits for most UAE banks. However, the performance on the margin front varied among some banks.

NIM is an important indicator of a bank’s profitability and growth, revealing the interest earned on loans compared to the interest paid on deposits. Despite monetary tightening, the banking sector witnessed a 6.2 percent growth in deposits and a 2 percent increase in loans and advances. Customer deposits mobilisation outperformed deposit growth for the first time since Q1 2022, reaching an impressive 43.5 percent, according to the report.

The report also highlighted that UAE banks’ aggregate net interest income grew by 0.4 percent quarter on quarter, and profitability improved with a 5.9 percent increase in return on equity, reaching 19.3 percent. Additionally, the return on assets rose to 2.2 percent, marking the highest levels seen in the past four years.

Ahmed expressed confidence in the banks’ ability to navigate a slight reduction in economic growth resulting from agreed-upon oil output cuts and higher interest rates. He noted that higher margins should bolster bank profitability, although provisioning may slightly offset this trend. The UAE banks are well-prepared and sufficiently capitalised to maintain capital adequacy ratio levels that exceed regulatory requirements.

The report analysed the top 10 listed banks in the UAE, including First Abu Dhabi Bank, Emirates NBD, Abu Dhabi Commercial Bank, Dubai Islamic Bank, and Mashreq Bank. It also assessed the performance of Abu Dhabi Islamic Bank, Commercial Bank of Dubai, National Bank of Fujairah, National Bank of Ras Al-Khaimah, and Sharjah Islamic Bank across key areas such as size, liquidity, income, operating efficiency, risk, profitability, and capital.