The aggregate net profit of the UAE's 10 largest banks increased by 5.6 per cent on a quarterly basis in the third quarter, boosted by lower impairment charges and a steady increase in net interest income.
The cumulative net income for the three months to the end of September climbed to Dh20.2 billion ($5.5 billion), professional services consultancy Alvarez & Marsal said in its UAE Banking Pulse report on Thursday.
Total net interest income, the amount banks earn from their lending activities minus the interest they pay to depositors, grew 5.5 per cent quarter-on-quarter as total interest income for the period rose 11.4 per cent.
“A robust third quarter for the UAE banks is buoyed by a higher interest rate environment and a meaningful reduction in impairment charges,” said Asad Ahmed, Alvarez & Marsal's managing director and head of Middle East Financial Services.
“Lenders are benefiting from healthy liquidity conditions supported by high oil prices, foreign capital inflows and moderate credit demand amid rising interest rates.”
The sharp economic rebound in the broader region and the UAE is expected to continue to support banking sector profitability.
The UAE economy expanded by 3.7 per cent annually in the first half of the year, driven by strong non-oil sector growth, Minister of Economy Abdulla bin Touq said in October.
The UAE Central Bank expects the country's economy to grow by 3.3 per cent this year.
Banks have benefitted from higher interest rates as central banks increase benchmark rates to stem inflation.
The UAE Central Bank increased the policy rates by 25 basis points in the third quarter, following a 25 bps increase by the US Federal Reserve.
“With inflation still above the target levels, we expect rate cuts only after mid-2024.
“However, we believe net interest margins of the UAE banks will remain stable for the balance of 2023, before [a] marginal decline in 2024 post the rate cycle reversion,” Mr Ahmed said.
While the benchmark interest rates are peaking out, net interest income grew strongly for the third quarter as loans and advances experienced a 2.4 per cent growth, predominantly fuelled by a 2.5 per cent expansion in corporate loans, the A&M report said.
High-cost time deposits drove the overall deposit growth of the UAE banks during the quarter as customers responded to the rising interest rates.
Aggregate deposits grew by 3.9 per cent quarter-on-quarter, outpacing loan growth of 2.4 per cent, resulting in the loan-to-deposit ratio decreasing 1.1 percentage points to 75.2 per cent.
The overall asset quality of lenders improved as the non-performing loans ratio improved to 5.1 per cent while the coverage ratio fell 2.3 percentage points, the survey showed.
The UAE Banking Pulse 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.
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.”
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Tax authority targets shisha levy evasion
The Federal Tax Authority will track shisha imports with electronic markers to protect customers and ensure levies have been paid.
Khalid Ali Al Bustani, director of the tax authority, on Sunday said the move is to "prevent tax evasion and support the authority’s tax collection efforts".
The scheme’s first phase, which came into effect on 1st January, 2019, covers all types of imported and domestically produced and distributed cigarettes. As of May 1, importing any type of cigarettes without the digital marks will be prohibited.
He said the latest phase will see imported and locally produced shisha tobacco tracked by the final quarter of this year.
"The FTA also maintains ongoing communication with concerned companies, to help them adapt their systems to meet our requirements and coordinate between all parties involved," he said.
As with cigarettes, shisha was hit with a 100 per cent tax in October 2017, though manufacturers and cafes absorbed some of the costs to prevent prices doubling.
Company Profile
Company name: NutriCal
Started: 2019
Founder: Soniya Ashar
Based: Dubai
Industry: Food Technology
Initial investment: Self-funded undisclosed amount
Future plan: Looking to raise fresh capital and expand in Saudi Arabia
Total Clients: Over 50
UPI facts
More than 2.2 million Indian tourists arrived in UAE in 2023
More than 3.5 million Indians reside in UAE
Indian tourists can make purchases in UAE using rupee accounts in India through QR-code-based UPI real-time payment systems
Indian residents in UAE can use their non-resident NRO and NRE accounts held in Indian banks linked to a UAE mobile number for UPI transactions
