Top 10 Listed UAE Banks’ NI Grew to $5.85 Billion

The combined net income of the UAE’s top 10 listed banks grew 2.9% q-o-q to $5.85 billion in the second quarter of 2024, according to a new report from Dubai-based management consultancy firm Alvarez & Marsal Middle East Limited (A&M).

According to the report, loans and advances (L&A) in the second quarter grew moderately (+3.2% QoQ), as retail lending witnessed a surge of 8% QoQ. However, deposits mobilization slowed down (+0.4% QoQ) mainly due to decline in time deposits by 2.5%.

Consequently, the loan-to-deposit ratio (LDR) increased by 2% points q-o-q. Despite stable benchmark interest rates, net interest income (NII) grew by 2% during the quarter due to the higher LDR effect. Non-interest income (-2.9% q-o-q) subdued the growth in total operating income.

Profitability was supported by lower impairment charges (-35.4% q-o-q) while net income increased 2.9% during the same period resulting in a return on equity (RoE) improvement of 48bps q-o-q to 20.8%, the report said.

Asset quality improved for the quarter, however bank credit outlay/quality remains sensitive to the high interest rate environment, inflation and regional instability.

Oil economy continues to face challenges with price fluctuations and dependence on the OPEC+ decision on quotas. However, the non-oil GDP remains very robust, with CBUAE growth forecast of +5.4% in both 2024 and 2025.

CBUAE continued to anchor its benchmark rate to the US Fed and maintained the bank rate at 5.4%. US Fed delayed rate cuts as the inflation was still above the target level (2%) and the interest rate reversal is now expected in September.

Banking Overview

Total interest income of top ten UAE banks increased by 4% in q-o-q compared with previous which witnessed a decline of 2%.

The spread between annualized yield on credit and cost of funds decreased marginally to 7.7% (-5bps q-o-q and the aggregate net income increased by 2.9% q-o-q. This was primarily due to lower impairment charges (-35.4% qo-q).

The UAE banks’ exposure to the real estate and construction sector declined to 14.8% in this quarter. However, despite the regional geopolitical tension in the Middle East, the UAE real estate thrives with strong growth.

In the residential market of Dubai, the average prices registered a growth of 21.3% y-oy and average residential rents grew by 21.1% y-o-y in the second quarter.

M&A in Banks

Banking sector in the UAE did not witness any completed or announced M&A deals though the deal between First Abu Dhabi Bank to acquire Yapi Ve Kredi Bankasi in Turkey was terminated. FAB was also in talks with Koc Group to buy 61.2% stake of the bank for circa $8 billion.

Of the 18 proposals for mergers and acquisitions by the UAE banks since August 2019, 12 were completed, three each were either pending or in the initial stages, the report said.