Public-sector loans to help UAE’s four largest lenders retain profitability in 2020

Profitability at the UAE’s four largest banks is set to remain resilient this year, as strong public-sector loan growth balances the effects of competition and subdued private-sector credit demand, a report from Moody’s Investors Service found.

The four lenders – First Abu Dhabi Bank, Emirates NBD, Abu Dhabi Commercial Bank and Dubai Islamic Bank – reported a combined net profit of Dh37 billion last year, up 13 per cent from 2018 on the back of growth in organic lending, acquisitions and strong non-interest income.

A large one-off gain of $1.2bn (Dh4.40bn) at Emirates NBD from the partial disposal of a stake in payments company Network International in April last year, was also a factor.

The four banks accounted for 73 per cent of banking assets in the UAE as of December.

“We expect the banks’ profitability to remain resilient in 2020, with a net income to tangible assets ratio at around 1.8 per cent,” said Mik Kabeya, assistant vice president and analyst at Moody’s.

“Non-interest income accounted for 30 per cent of operating income in 2019 and will remain solid, given the sizeable portion of relatively resilient foreign exchange and credit card related income.”

Last year, Emirates NBD reported a 44 per cent rise in profit year-on-year, while FAB’s profit increased by 4 per cent and DIB’s by 2 per cent. Pro-forma profit at ADCB fell 14 per cent as a result of higher funding costs and impairment charges, combined with the integration costs of Union National Bank and Al Hilal Bank.

The non-interest income at the four banks grew 30 per cent last year because of higher income from foreign-exchange, investment, credit card spending and trading, said Moody’s.

At Emirates NBD, non-interest income grew 38 per cent on the back of a 32 per cent increase in core fee income as well as higher foreign exchange and credit card related income. DIB reported a 32 per cent rise in non-interest income, driven by strong income from investment in properties and others measured at fair value.

FAB also saw a 17 per cent increase, as the combination of higher foreign exchange and trading gains, strong investment and ALM returns (asset and liability management), as well as increased client flow activity outweighed its lower trade related fees.

ADCB’s non-interest income, however, rose 3 per cent, largely due to a narrower revaluation loss on investment properties. Net interest income also increased materially, driven by loan book growth.

The four lenders reported strong growth in public sector lending and combined with acquisitions led to a 13 per cent rise in credit growth.

In 2020, the banks’ technology investments and integration costs will be moderated by disciplined cost management, the report said. 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 non-hydrocarbon economy.

FAB, Emirates NBD, ADCB and Dubai Islamic Bank reported a combined net profit of Dh37 billion last year