Positive earnings for banks during the first quarter stand in stark contrast to results from last year.
Then, revenues virtually stagnated across the Gulf, which analysts said would put pressure on lenders to squeeze more profit from their customers in the months ahead.
Revenues at the 35 regional banks sampled in a report by the Boston Consulting Group increasedby just 1 per cent between 2009 and last year to US$38.3 billion (Dh140.67bn).
At UAE banks, revenues grew by 2 per cent, while operating profits rose 12 per cent, the second-slowest rate in the Gulf after Saudi Arabia. Sluggish growth could lead to higher borrowing costs for retail and corporate customers as banks cut costs and seek to make more profits from existing customers, analysts said.
"Middle East banking revenue growth slowed down in 2010, while profits picked up quite significantly due to reduced provisions for bad loans," the report said.
"Middle East banks are now facing the challenge of how to improve operating models and process efficiency in order to prevent costs from growing at a higher rate than revenues." Revenue growth was greatest among Qatari and Omani banks last year, with 14 per cent and 13 per cent increases, respectively, compared with 2009.
The macroeconomic picture has produced an uncertain outlook for local banks, said Dr Reinhold Leichtfuss, a senior partner and managing director at Boston Consulting.
"Now we're potentially hitting a very low point of growth rates and especially at the credit level," he said. But he added while banks would need to make more profit from customers, they would be limited by competitive pressures. Despite challenges in retail banking, notably new regulations from the Central Bank limiting the size and fees of personal loans, the segment would remain profitable, he said.
Philippe Dauba-Pantanacce, the chief economist at Standard Chartered, said liquidity was improving, but warned against over-exuberance about the prospects for the UAE's lenders.
