Aggregate Q2 net profit of top 10 UAE banks climbs 24% on interest income boost

Total interest income of the banks grew 19.5% at the end of the April-June quarter, consultancy Alvarez & Marsal says

Emirates NBD is among the UAE banks to report strong second-quarter profit growth. Reuters

The aggregate net profit of the UAE's 10 largest banks increased more than 24 per cent quarter on quarter, boosted by a significant jump in their net interest income, according to professional services consultancy Alvarez & Marsal.

The cumulative net income for the three months to the end of June climbed to Dh12.6 billion ($3.43bn), the consultancy said in its UAE Banking Pulse report on Wednesday.

Total net interest income for the banks, which is what lenders earn from their lending activities minus the interest they pay to depositors, grew 19.5 per cent at the end of the April-June quarter.

The sharp economic rebound in the broader region and the UAE will continue to underpin a further rise in profitability.

“The regional banking sector, including that of the UAE, is expected to report continued strong profitability on the back of increasing interest rates, improving credit quality and robust economic growth,” said Asad Ahmed, Alvarez & Marsal (A&M) managing director and head of Middle East Financial Services.

“While clearly inflation is now a global concern, we foresee a lesser impact of this in the region, against the backdrop of firm oil prices, increased consumer confidence and strong economic activity.”

The UAE economy, which rebounded strongly from the Covid-19 pandemic-driven slump in 2021, has carried the growth momentum into this year.

The country’s economic output is poised to post its strongest annual expansion since 2011 after it grew by 8.2 per cent in the first three months of this year. This was driven by a sharp increase in oil production, as well as a noticeable improvement in the real non-oil gross domestic product, the UAE Central Bank said in its latest Quarterly Economic Review 2022.

The UAE economy, which expanded by 3.8 per cent in 2021, is expected to grow by 5.4 per cent and 4.2 per cent in 2022 and 2023 respectively, the regulator said in July.

Banks in the Arab world’s second-largest economy are also expected to benefit from rising interest rates as central banks increase benchmark rates to stem inflation.

The US Federal Reserve in July increased the policy rate by 75 basis points (bps) after a larger-than-expected three quarters percentage point in June. It was the Fed's fourth interest rate increase in four months and the biggest since 1994.

Central Banks in Saudi Arabia, Bahrain, Kuwait and Qatar also raised their benchmark borrowing rates after the Fed doubled down to tame surging inflation and restore price stability.

A&M said although the UAE banking sector’s aggregate net interest margin (NIM) improved to 2.3 per cent, it is still below the pre-pandemic levels of 2.6 per cent. The NIM improved by 26.1 basis points quarter on quarter, underpinned by higher benchmark rates.

The survey covered the UAE’s 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.

The aggregate loans and advances at the end of the April-June quarter increased 1.8 per cent from the previous three-month period, while deposits grew at 4.5 per cent.

A&M said the overall asset quality of lenders improved as non-performing loans fell by 0.4 per cent to 5.7 per cent during the quarter. Cost of risk also improved as aggregate impairment charges continued to decline for the sixth consecutive quarter.