The aggregate net profit of the UAE's 10 largest banks increased more than 24 per cent quarter on quarter, boosted by a significant jump in their net interest income, according to professional services consultancy Alvarez & Marsal.
The cumulative net income for the three months to the end of June climbed to Dh12.6 billion ($3.43bn), the consultancy said in its UAE Banking Pulse report on Wednesday.
Total net interest income for the banks, which is what lenders earn from their lending activities minus the interest they pay to depositors, grew 19.5 per cent at the end of the April-June quarter.
The sharp economic rebound in the broader region and the UAE will continue to underpin a further rise in profitability.
“The regional banking sector, including that of the UAE, is expected to report continued strong profitability on the back of increasing interest rates, improving credit quality and robust economic growth,” said Asad Ahmed, Alvarez & Marsal (A&M) managing director and head of Middle East Financial Services.
“While clearly inflation is now a global concern, we foresee a lesser impact of this in the region, against the backdrop of firm oil prices, increased consumer confidence and strong economic activity.”
The UAE economy, which rebounded strongly from the Covid-19 pandemic-driven slump in 2021, has carried the growth momentum into this year.
The country’s economic output is poised to post its strongest annual expansion since 2011 after it grew by 8.2 per cent in the first three months of this year. This was driven by a sharp increase in oil production, as well as a noticeable improvement in the real non-oil gross domestic product, the UAE Central Bank said in its latest Quarterly Economic Review 2022.
The UAE economy, which expanded by 3.8 per cent in 2021, is expected to grow by 5.4 per cent and 4.2 per cent in 2022 and 2023 respectively, the regulator said in July.
Banks in the Arab world’s second-largest economy are also expected to benefit from rising interest rates as central banks increase benchmark rates to stem inflation.
The US Federal Reserve in July increased the policy rate by 75 basis points (bps) after a larger-than-expected three quarters percentage point in June. It was the Fed's fourth interest rate increase in four months and the biggest since 1994.
The regional banking sector, including that of the UAE, is expected to report continued strong profitability on the back of increasing interest rates, improving credit quality and robust economic growth
Asad Ahmed,
Alvarez & Marsal managing director and head of Middle East Financial Services
Central Banks in Saudi Arabia, Bahrain, Kuwait and Qatar also raised their benchmark borrowing rates after the Fed doubled down to tame surging inflation and restore price stability.
A&M said although the UAE banking sector’s aggregate net interest margin (NIM) improved to 2.3 per cent, it is still below the pre-pandemic levels of 2.6 per cent. The NIM improved by 26.1 basis points quarter on quarter, underpinned by higher benchmark rates.
The survey covered the UAE’s 10 banks by assets ― First Abu Dhabi Bank, Emirates NBD, Abu Dhabi Commercial Bank, Dubai Islamic Bank, Mashreq Bank, Abu Dhabi Islamic Bank, Commercial Bank of Dubai, National Bank of Fujairah, National Bank of Ras Al Khaimah and Sharjah Islamic Bank.
The aggregate loans and advances at the end of the April-June quarter increased 1.8 per cent from the previous three-month period, while deposits grew at 4.5 per cent.
A&M said the overall asset quality of lenders improved as non-performing loans fell by 0.4 per cent to 5.7 per cent during the quarter. Cost of risk also improved as aggregate impairment charges continued to decline for the sixth consecutive quarter.
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What is the FNC?
The Federal National Council is one of five federal authorities established by the UAE constitution. It held its first session on December 2, 1972, a year to the day after Federation.
It has 40 members, eight of whom are women. The members represent the UAE population through each of the emirates. Abu Dhabi and Dubai have eight members each, Sharjah and Ras al Khaimah six, and Ajman, Fujairah and Umm Al Quwain have four.
They bring Emirati issues to the council for debate and put those concerns to ministers summoned for questioning.
The FNC’s main functions include passing, amending or rejecting federal draft laws, discussing international treaties and agreements, and offering recommendations on general subjects raised during sessions.
Federal draft laws must first pass through the FNC for recommendations when members can amend the laws to suit the needs of citizens. The draft laws are then forwarded to the Cabinet for consideration and approval.
Since 2006, half of the members have been elected by UAE citizens to serve four-year terms and the other half are appointed by the Ruler’s Courts of the seven emirates.
In the 2015 elections, 78 of the 252 candidates were women. Women also represented 48 per cent of all voters and 67 per cent of the voters were under the age of 40.
Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.
Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.
“Within the next two to three years, we are looking at reaching $2 to $3 billion as a conservative estimate and we do see an opportunity to do so,” said Mr AbuShaban.
Mercer does not directly make investments, but allocates clients’ money they have discretion to, to professional asset managers. They also provide advice to clients.
“We have buying power. We can negotiate on their (client’s) behalf with asset managers to provide them lower fees than they otherwise would have to get on their own,” he added.
Mercer Wealth’s clients include sovereign wealth funds, family offices, and insurance companies among others.
From its office in Dubai, Mercer also looks after Africa, India and Turkey, where they also see opportunity for growth.
Wealth creation in Middle East and Africa (MEA) grew 8.5 per cent to $8.1 trillion last year from $7.5tn in 2015, higher than last year’s global average of 6 per cent and the second-highest growth in a region after Asia-Pacific which grew 9.9 per cent, according to consultancy Boston Consulting Group (BCG). In the region, where wealth grew just 1.9 per cent in 2015 compared with 2014, a pickup in oil prices has helped in wealth generation.
BCG is forecasting MEA wealth will rise to $12tn by 2021, growing at an annual average of 8 per cent.
Drivers of wealth generation in the region will be split evenly between new wealth creation and growth of performance of existing assets, according to BCG.
Another general trend in the region is clients’ looking for a comprehensive approach to investing, according to Mr AbuShaban.
“Institutional investors or some of the families are seeing a slowdown in the available capital they have to invest and in that sense they are looking at optimizing the way they manage their portfolios and making sure they are not investing haphazardly and different parts of their investment are working together,” said Mr AbuShaban.
Some clients also have a higher appetite for risk, given the low interest-rate environment that does not provide enough yield for some institutional investors. These clients are keen to invest in illiquid assets, such as private equity and infrastructure.
“What we have seen is a desire for higher returns in what has been a low-return environment specifically in various fixed income or bonds,” he said.
“In this environment, we have seen a de facto increase in the risk that clients are taking in things like illiquid investments, private equity investments, infrastructure and private debt, those kind of investments were higher illiquidity results in incrementally higher returns.”
The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds, said in its 2016 report that has gradually increased its exposure in direct private equity and private credit transactions, mainly in Asian markets and especially in China and India. The authority’s private equity department focused on structured equities owing to “their defensive characteristics.”
Living in...
This article is part of a guide on where to live in the UAE. Our reporters will profile some of the country’s most desirable districts, provide an estimate of rental prices and introduce you to some of the residents who call each area home.
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