UAE bank profitability slips slightly in second quarter, Alvarez & Marsal survey shows

Profit growth weighed down by lower non-interest income

Alvarez expects the banking sector to return to a longer-term growth trajectory Carter / The National

UAE banks saw profitability decrease in the second quarter because of lower non-interest income but on the bright side net interest margins are increasing, according to the latest UAE Banking Pulse report from Alvarez & Marsal, the global professional services consultancy.

“The banking sector’s overall performance during the most recent quarter has been modest, with profitability and returns on equity showing a small decline,” said Saaeda Jaffar, a co-author of the report.

“However, this has been partially offset by a rise in net interest margin and banks have also been very sensible in managing their costs with an improvement in cost-to-income ratio. The decline in cost of risk is a reassuring indicator of the sector’s overall stability and liquidity remains at healthy levels.”

The survey found using data from the 10 biggest publicly traded banks in the UAE that non-interest income rose 31.1 per cent in the second quarter compared to 33.5 per cent in the same period last year while net interest margin increased to 2.52 per cent in the second quarter versus 2.45 per cent in the corresponding period last year.



Meanwhile, loans and advances contracted 0.3 per cent in the second quarter of 2017 compared to the same period last year when that metric grew 2.15 per cent while deposit growth in the second quarter decreased 1.03 per cent versus 3.62 per cent growth in the same quarter last year.

The banks analysed in the sure are First Abu Dhabi Bank, Emirates NBD, Abu Dhabi Commercial Bank, Dubai Islamic Bank, Mashreq Bank, Abu Dhabi Islamic Bank, Union National Bank, Commercial Bank of Dubai, National Bank of Ras Al-Khaimah and National Bank of Fujairah.

“Looking ahead, we expect the market to return to a longer-term growth trajectory, especially as the initial impact of the NBAD/First Gulf merger transforms into longer term performance,” Ms. Jaffar said.