UAE banking profits remain under pressure amid slow lending

Profitability of UAE banks continues to be under pressure, largely driven by conservative lending, although liquidity and risk metrics have been improving over the last 12 months, according to a new report.

The UAE Banking Pulse, an analysis of key data of top 10 banks by professional services firm Alvarez & Marsal, showed that in 2017 UAE banks are expected to report mid to high single-digit growth in assets.

The report, cited by state news agency WAM, also said that the country's banks will maintain costs to income ratios steady with improvement in profitability.

It added that although banks had anticipated a liquidity crunch last year, deposits outgrew loans and advances at the end of 2016  with banks turning cautious on lending.

Both loans and deposit growth moderated last year with decline in loan growth outstripping decline in deposit growth resulting in a decline in loans to deposits ratio.

Dr Saeeda Jaffar, managing director with A&M’s Performance Improvement and Financial Institutions Advisory Services Practices, said: "In 2016, year-on-year returns were not as high as in previous years, as a sustained period of more conservative lending and an increase in deposits took its toll.

"However, the good news is we are seeing signs of this downward cycle bottoming out. There is plenty of reason for banks’ shareholders to feel optimistic. Returns are still considerably higher than in other parts of the world, and banks are being run very prudently."

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A&M’s analysis is based on quarterly data published since the fourth quarter of 2015 by Emirates NBD, National Bank of Abu Dhabi, Abu Dhabi Commercial Bank, First Gulf Bank, Dubai Islamic Bank, Mashreq Bank, Abu Dhabi Islamic Bank, Union National Bank, Commercial Bank of Dubai and National Bank of Ras Al-Khaimah.

Data showed most large top 10 banks grew deposits faster than the market overall, with varying appetites for loan growth. Emirates NBD, National Bank of Abu Dhabi and Abu Dhabi Commercial Bank gained market share, while Dubai Islamic Bank secured a greater share of the loans market.

Six of the top UAE 10 banks witnessed a decline in net interest margin while four remained constant, the report said.

A&M’s report used 17 metrics to assess the key performance areas of size, liquidity, revenue and operating efficiency, risk, profitability and capital.

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