Top 10 UAE banks post 21.2pc surge in profit

The top 10 UAE banks posted a 21.2 per cent jump in their net profits for the April- June quarter as a result of lower provisioning and increased cost efficiency, a report by a leading professional services firm said on Wednesday.

"Like many banks globally, the UAE's top lenders are likely to focus more on improving their efficacy in the coming period as a challenging operating environment demands increased efforts toward cost optimization," said the report by Alvarez & Marsal.

The country's 10 largest listed banks analysed in A& M's UAE Banking Pulse report include First Abu Dhabi Bank, Emirates NBD, Abu Dhabi Commercial Bank, Dubai Islamic Bank, Mashreq Bank, Abu Dhabi Islamic Bank, Commercial Bank of Dubai, National Bank of Fujairah, National Bank of Ras Al- Khaimah, and Sharjah Islamic Bank.

Dr Saeeda Jaffar, A& M managing director and head of Middle East, and Asad Ahmed, A& M managing director and head of Middle East Financial Services, co- authored the report.

"The profitability of the UAE banks in Q2 2020 rebounded as cost optimisation measures and lower provisioning supported income. The UAE lenders are among the most profitable globally, bolstered by a mix of sound liquidity, strong capitalization, low levels of nonperforming loans and a substantial proportion of non- interest- bearing deposits," said Ahmed.

Despite challenging market conditions, the banks witnessed a fringe surge in loans and advances, and deposit growth. This has added liquidity in the banking system, said the report.

Lenders witnessed a considerable contraction in net interest margins in the second quarter due to many factors such as the shift to the marginal cost of funds- based lending rate, and an alltime low interest rates.

"While the central bank expects a pickup in corporate credit demand for Q3 2020, the recovery would likely be fragile. In the forthcoming quarters, it may be beneficial for banks to introduce efficiency boosting measures and increase their focus towards digitisation to save costs and support the bottom- line," he said.

Ahmed said the economic stimulus package by the UAE Central Bank, which has provided the nation's banks with a new set of liquidity- boosting and capital protection measures, has been extremely well received. "We believe the package will give banks greater flexibility, while easing the pressures that have built up over the past months."

The report said while there has been a peripheral increase in profitability, the outlook for the domestic banking sector still remains subdued as a result of the weakened after- effects of Covid- 19, in addition to low oil prices, and the postponement of Expo 2020.

Moreover, the low- interest environment, along with a possible increase in impairments, is expected to further weigh on profitability.