UAE’s top 4 banks’ net profits to remain steady
27% Year-on-year reduction in loan loss provisions
dubai – Higher net interest income and lower provisions drove profits higher for the four largest banks in the UAE in second-quarter 2018 with profitability likely to remain stable into 2019, said Moody’s Investors Service.
“We expect core profitability for the large UAE banks to remain broadly stable over the next 12-18 months, as interest earnings hold steady at current levels, and as the decline in provisioning charges reverses due to softening business confidence,” says Nitish Bhojnagarwala, vice-president, senior credit officer at Moody’s.
The big four banks — First Abu Dhabi Bank, Emirates NBD, Abu Dhabi Commercial Bank and Dubai Islamic Bank — reported combined net profit of Dh8 billion ($2.2 billion) in Q2 2018, up 21 per cent year on year.
Profitability improvements were mainly driven by a 10 per cent increase in net interest income compared with Q2 2017, as banks repriced loans following a rise in interest rates. The banks also benefited from a 27 per cent year-on-year reduction in loan loss provisions, as they were allowed to take expected future credit losses from their capital, a one-off measure to facilitate IFRS 9 adoption in Q1 2018.
Operating costs rose 3 per cent quarter-on-quarter and 8 per cent year-on-year, mainly reflecting investments in technology to improve operational efficiency. However, the overall cost to income ratio for the four banks was stable at 30 per cent in Q2, and is likely to remain stable at this level over the next 12-18 months as their technology investments begin to yield results. Deposits increased and capital improved modestly during the second quarter of 2018.