The combined profits of the UAE’s 10 biggest banks grew by 85 per cent in the first quarter, compared with the previous three months, according to Alvarez & Marsal.
The country's strong fiscal position and its improving economy have supported the sector, with an ongoing focus on cost efficiencies expected to boost the profitability of lenders this year, the consultancy said in its 2021 first-quarter UAE Banking Pulse report.
“The UAE banking sector has witnessed a sizeable improvement in profitability in the first quarter and the trend is likely to continue in subsequent quarters,” said Asad Ahmed, Alvarez & Marsal's managing director and head of its Middle East financial services business.
The survey covered the UAE’s top 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.
Lenders around the world are benefitting from improved operating conditions as businesses stabilise and economies gradually emerge from the coronavirus-induced slowdown.
However, governments and central banks are keeping their fiscal and the monetary packages in place to continue supporting economies.
The increased profitability of UAE lenders meant their aggregate return on equity improved to 9.7 per cent during the first three months of this year, from 5 per cent in the fourth quarter of last year.
However, loans and advances contracted by 0.7 per cent.
Eight of the 10 lenders reported a fall in the cost of risk, which was down 72 basis points as the improved macroeconomic environment led to a 36.1 per cent decline in provisioning to Dh5.3 billion ($1.44bn).
To achieve 100 per cent cover, the top 10 UAE banks would have to book additional Dh18.2bn in provisions.
Last year, the UAE Central Bank introduced the Targeted Economic Support Scheme – a Dh50bn, zero-cost liquidity programme for lenders in the country.
The regulator extended parts of the programme to the end of June next year to help soften the economic blow of the pandemic.
Overall, the UAE has unveiled economic support packages worth Dh388bn since the onset of the pandemic.
The extension of Tess is “expected to help cushion banks’ asset quality and ease their balance-sheet stress through [to] the second quarter of 2022”, said Mr Ahmed.
The report, which analysed different performance indicators, said aggregate net interest margins continued to remain under pressure, falling to a multi-year low of 2 per cent in the first quarter.
Deposits grew by 1.2 per cent during the same period and the aggregate loan-to-deposit ratio for the 10 listed banks stood at 84.5 per cent, down from 86.2 per cent in the previous three months.
The combined cost-to-income ratio also fell by 3.6 per cent after rising in the two quarters before that.
“Operating costs and credit loss charges are expected to improve in 2021 compared to 2020 as banks focus on cost efficiency, adopt innovation and gain clarity on the economic recovery,” said Mr Ahmed.
