The UAE’s top banks have maintained a strong capital position, supported by robust profits, and their asset quality improved in the quarter ending June 2024.
Alvarez & Marsal (A&M), in its latest UAE Banking Pulse report for Q2 2024, highlighted that profitability rose to AED 21.5B, driven by higher net interest income (NII) and a 35.4 percent quarter-on-quarter (QoQ) reduction in impairment charges.
Despite stable interest rates, NII increased by 2 percent QoQ due to a higher loan-to-deposit ratio (LDR). Non-interest income fell slightly by 2.9 percent QoQ, leading to a modest 0.4 percent growth in total operating income and a 48 basis points (bps) increase in return on equity (RoE). Return on assets (RoA) remained steady at 2.2 percent.
Loans and advances (L&A) grew by 3.2 percent QoQ, with retail lending rising by 8 percent. However, deposit mobilisation slowed to 0.4 percent QoQ, largely due to a 2.5 percent decline in time deposits, resulting in a 2 percent QoQ increase in LDR.
Key trends in Q2 2024 include credit demand outpacing deposit mobilisation, with L&A growing by 3.2 percent QoQ versus a 0.4 percent QoQ rise in deposits. NIMs remained flat as benchmark interest rates were stable, and cost efficiencies deteriorated, with the cost-to-income ratio worsening by 19bps to 28.1 percent. The cost of risk improved, reaching a multi-year low of 0.3 percent, with total impairments falling by 35.4 percent QoQ to AED 1.3B.
Asad Ahmed, A&M Managing Director, noted that UAE banks remain strong, with a CAR of 17.6 percent. He also mentioned potential precautionary measures due to sensitive asset quality and a focus on growing non-interest income as interest margins come under pressure.
