UAE bank profitability improves in the third quarter, Alvarez & Marsal says

Alvarez & Marsal says consultancy says lenders have adjusted to lower oil prices

GCC bank profits grow 6 per cent in 2017, according to BCG. Ahmed Jadallah/Reuters

The profitability of UAE banks improved in the third quarter versus the second as lenders expanded loan books and kept costs at bay, according to the global consultants Alvarez & Marsal.

“The return to growth which we previously anticipated has now started to be seen as banks have steadily adapted to the new normality of the current oil price environment,” said Saeeda Jaffar, a managing director in the firm’s Financial Institutions Advisory Services practice.

“The housekeeping measures which we saw many banks implement last year were on the back of fears that the operating environment would worsen significantly, but it has not turned out as bad as was expected.”

Operating income growth of the banks measured by the consultancy gained 1.92 per cent in the third quarter, compared with a drop of 1.18 per cent in the second quarter on the first quarter. Return on assets rose 1.83 per cent, against a 1.74 per cent increase in the second quarter on the first quarter.

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Alvarez & Marsal analyses quarterly data of 10 banks in the UAE, using metrics that include liquidity, revenue, operating efficiency, risk, profitability and capital.

Those banks are Emirates NBD, National Bank of Abu Dhabi, Abu Dhabi Commercial Bank, FGB, Dubai Islamic Bank, Mashreq, Abu Dhabi Islamic Bank, Union National Bank, Commercial Bank of Dubai and National Bank of Ras Al Khaimah (RAKBank).

UAE banks and financial institutions that lend have not had the best of times in recent years. Deposits have dwindled as government-related entities have withdrawn funds to plug growing budget deficits.

While the fall in the price of oil, which has been reversing recently, led to an increase in borrowing by governments to reduce those deficits, it has softened demand for loans among local corporations and increased the level of debt defaults. Among the hardest hit have been small and medium-sized businesses.

In the past quarter, however, there has been a marked improvement in loans and advances, reversing the recent trend. Loans and advances grew 1.26 per cent in the three months ended September 30, compared with a drop of 0.3 per cent in the second quarter versus the first quarter of the year. Meanwhile, deposit growth rose 0.61 per cent in the third quarter after dropping 1.03 per cent in the second quarter from the first quarter.