Top 10 UAE banks record 5.6% rise in quarterly profit on lower impairment charges

Aggregate interest income grew by 11.4 per cent in the July-September period, report finds

The aggregate net profit of the UAE's 10 largest banks increased nearly 6 per cent in the third quarter

The aggregate net profit of the UAE's 10 largest banks increased by 5.6 per cent on a quarterly basis in the third quarter, boosted by lower impairment charges and a steady increase in net interest income.

The cumulative net income for the three months to the end of September climbed to Dh20.2 billion ($5.5 billion), professional services consultancy Alvarez & Marsal said in its UAE Banking Pulse report on Thursday.

Total net interest income, the amount banks earn from their lending activities minus the interest they pay to depositors, grew 5.5 per cent quarter-on-quarter as total interest income for the period rose 11.4 per cent.

“A robust third quarter for the UAE banks is buoyed by a higher interest rate environment and a meaningful reduction in impairment charges,” said Asad Ahmed, Alvarez & Marsal's managing director and head of Middle East Financial Services.

“Lenders are benefiting from healthy liquidity conditions supported by high oil prices, foreign capital inflows and moderate credit demand amid rising interest rates.”

The sharp economic rebound in the broader region and the UAE is expected to continue to support banking sector profitability.

The UAE economy expanded by 3.7 per cent annually in the first half of the year, driven by strong non-oil sector growth, Minister of Economy Abdulla bin Touq said in October.

The UAE Central Bank expects the country's economy to grow by 3.3 per cent this year.

Banks have benefitted from higher interest rates as central banks increase benchmark rates to stem inflation.

The UAE Central Bank increased the policy rates by 25 basis points in the third quarter, following a 25 bps increase by the US Federal Reserve.

“With inflation still above the target levels, we expect rate cuts only after mid-2024.

“However, we believe net interest margins of the UAE banks will remain stable for the balance of 2023, before [a] marginal decline in 2024 post the rate cycle reversion,” Mr Ahmed said.

While the benchmark interest rates are peaking out, net interest income grew strongly for the third quarter as loans and advances experienced a 2.4 per cent growth, predominantly fuelled by a 2.5 per cent expansion in corporate loans, the A&M report said.

High-cost time deposits drove the overall deposit growth of the UAE banks during the quarter as customers responded to the rising interest rates.

Aggregate deposits grew by 3.9 per cent quarter-on-quarter, outpacing loan growth of 2.4 per cent, resulting in the loan-to-deposit ratio decreasing 1.1 percentage points to 75.2 per cent.

The overall asset quality of lenders improved as the non-performing loans ratio improved to 5.1 per cent while the coverage ratio fell 2.3 percentage points, the survey showed.

The UAE Banking Pulse 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.