UAE banks post solid Q2 prof­its sup­ported by higher in­ter­est in­come

Financial Mirror (Cyprus) - - FRONT PAGE -

Prof­itabil­ity at the four largest UAE banks will re­main solid in the next 12 to 18 months un­der­pinned by solid in­ter­est in­come, de­spite pres­sure on fee and com­mis­sion in­come, says Moody’s In­vestors Ser­vice in a new re­port.

The four banks, First Abu Dhabi Bank PJSC (FAB, Aa3/Aa3 Sta­ble, a3), Emirates NBD PJSC (ENBD, A3/A3 Sta­ble, ba1), Abu Dhabi Com­mer­cial Bank (ADCB, A1/A1 Sta­ble, baa3) and Dubai Is­lamic Bank PJSC (DIB, A3/A3 Sta­ble, ba2), re­ported a com­bined net profit of AED6.7 bil­lion ($1.8 bln) in Q2 2017 sup­ported by higher net in­ter­est in­come.

Ag­gre­gate net prof­itabil­ity was broadly flat ver­sus Q2 2016, but fell 3.5% quar­ter on quar­ter also par­tially driven by a de­cline in fee and com­mis­sion in­come.

“Prof­itabil­ity was sup­ported by higher yields on loans and sta­ble fund­ing costs, which drove higher net in­ter­est in­come, de­spite slug­gish eco­nomic growth due to cur­rent oil prices,” said Ni­tish Bho­j­na­gar­wala, a Vice Pres­i­dent at Moody’s.

Op­er­at­ing ex­penses across the four banks were down by 6% rel­a­tive both to the pre­vi­ous quar­ter and to Q2 2016. Over the next 12 to 18 months, we ex­pect broadly sta­ble cost to in­come ra­tios as the banks con­tinue to in­vest in tech­nol­ogy off­set­ting cost-cut­ting gains.

“How­ever, pro­vi­sion­ing charges showed a mixed trend with ENBD and FAB show­ing an im­prov­ing trend, while ADCB and DIB posted weak­en­ing trends. We ex­pect a mod­est rise in pro­vi­sion­ing charges in the com­ing quar­ters, driven by the slug­gish eco­nomic growth,” added Ni­tish.

Com­bined de­posits at the four banks de­clined marginally by 1% to AED 1 tril­lion (around $273 bln) com­pared to Q1 2017. This slight drop was after solid de­posit growth in pre­vi­ous quar­ters for the UAE bank­ing sys­tem, which sug­gest that liq­uid­ity pres­sure has been eas­ing. Nev­er­the­less, the oil price lev­els will con­tinue to weigh on de­posit growth for the next few quar­ters.

The banks’ com­bined Tier 1 cap­i­tal ra­tio im­proved mod­estly to 16.7% from 16.2% rel­a­tive to the pre­vi­ous quar­ter.

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