UAE banks to stay profitable in 2020

dubai — Profitability in the UAE’s banking sector is expected to remain resilient in 2020, helped by solid public-sector loan growth, Moody’s Investors Service said on Wednesday.

“We expect profitability at large UAE banks to remain resilient in 2020, with a net income to tangible assets ratio at around 1.8 per cent. Net interest income will increase modestly, as solid public sector credit growth balances the impact of competition and muted private sector credit demand. Non-interest income will remain solid, given the sizeable portion of relatively resilient foreign exchange and credit card related income,” said Mik Kabeya, an analyst at Moody’s.

“Provisioning charges will increase noticeably as Opec production cuts constrain hydrocarbon economic growth, while slowing global trade, moderate oil prices, strong currency and geopolitical tensions weigh on the non-hydrocarbon economy.”

He expects the combined cost of risk ratio for the four banks to increase further, and range between 90 and 110 basis points for 2020.

In 2019, the UAE’s four largest banks — First Abu Dhabi Bank, Emirates NBD, Abu Dhabi Commercial Bank and Dubai Islamic Bank — reported a combined net profit of Dh37 billion ($10.1 billion) last year, up 13 per cent from 2018.

The healthy profitability reflected growth from organic lending and large acquisitions and strong noninterest income. The four banks account for 73 per cent of banking assets as of December 2019.

Kabeya noted that technology investments and integration costs will increase expenses, moderated by disciplined cost management.