The UAE’s 10 biggest lenders increased profitability in the second quarter of this year, as their loans and advances grew amid the Covid-19 pandemic-driven economic slowdown.
The banks posted a 21.2 per cent jump in combined net profit for the April-June quarter, compared to the first quarter of the year. Profits were helped by lower provisioning and tighter cost controls, Alvarez & Marsal (A&M) said in its UAE Banking Pulse for Q2 2020 on Wednesday.
However, net interest margins (NIM) fell during the second quarter, driven down by all-time low interest rates. The outlook for the third quarter also remains subdued, as lower oil prices and a rise in provisions for bad loans are likely to weigh on profitability as Covid-19 continues to cause uncertainty.
“The profitability of the UAE banks in second quarter rebounded as cost optimisation measures and lower provisioning supported income,” Asad Ahmed, A&M managing director and head of Middle East Financial Services, said. “UAE lenders are among the most profitable globally, bolstered by a mix of sound liquidity, strong capitalisation, low levels of non-performing loans, and a substantial proportion of non-interest-bearing deposits.”
While the Central Bank of the UAE expects a pickup in corporate credit demand during the third quarter of this year, the recovery would likely be fragile, he said.
“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.”
The report looks at the key performance metrics of the country’s 10 largest lenders – 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.
Lenders across the globe are facing a tough operating environment, making provisions for expected loan losses as the global economy slides into its deepest recession since the 1930s. JPMorgan, the biggest US bank, set aside $10.47bn (Dh38.4bn) to cover bad loans, which halved its second quarter profit. HSBC, Europe's largest lender, also reported a 57 per cent decline in its second quarter profit earlier this month and warned loan losses may climb to as much as $13bn.
Despite these headwinds, loans and advances and deposit growth for UAE lenders improved in the second quarter. Total loans grew 1 per cent during the quarter and deposits rose 1.1 per cent. DIB outperformed its peers with double-digit loan growth of 11 per cent, while Mashreq outshone in terms of deposit-taking, achieving 11 per cent growth.
The banks' combined loan-to-deposit ratio remained broadly unchanged at 87.7 per cent during the period, according to the report that was co-authored by Saeeda Jaffar, A&M managing director and head of Middle East. Operating income took a hit for the second consecutive quarter, declining 9.2 per cent from first three months of 2020 as all income streams weakened.
Net interest income dropped 7.3 per cent and net fee income fell 23 per cent, as restrictions on movements in the country during the second quarter curtailed new business, according to the report.
NIM also fell by about 24 basis point to 2.29 per cent because of the sharp decline in interest rates. Nine of the top 10 banks reported lower margins during the period. The lenders' combined cost-to-income ratio continued to improve, though. It reached 33.4 per cent as operating expenses fell by about 11 per cent as banks focused on optimising their expenses, the report said.
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A new relationship with the old country
Treaty of Friendship between the United Kingdom of Great Britain and Northern Ireland and the United Arab Emirates
The United kingdom of Great Britain and Northern Ireland and the United Arab Emirates; Considering that the United Arab Emirates has assumed full responsibility as a sovereign and independent State; Determined that the long-standing and traditional relations of close friendship and cooperation between their peoples shall continue; Desiring to give expression to this intention in the form of a Treaty Friendship; Have agreed as follows:
ARTICLE 1 The relations between the United Kingdom of Great Britain and Northern Ireland and the United Arab Emirates shall be governed by a spirit of close friendship. In recognition of this, the Contracting Parties, conscious of their common interest in the peace and stability of the region, shall: (a) consult together on matters of mutual concern in time of need; (b) settle all their disputes by peaceful means in conformity with the provisions of the Charter of the United Nations.
ARTICLE 2 The Contracting Parties shall encourage education, scientific and cultural cooperation between the two States in accordance with arrangements to be agreed. Such arrangements shall cover among other things: (a) the promotion of mutual understanding of their respective cultures, civilisations and languages, the promotion of contacts among professional bodies, universities and cultural institutions; (c) the encouragement of technical, scientific and cultural exchanges.
ARTICLE 3 The Contracting Parties shall maintain the close relationship already existing between them in the field of trade and commerce. Representatives of the Contracting Parties shall meet from time to time to consider means by which such relations can be further developed and strengthened, including the possibility of concluding treaties or agreements on matters of mutual concern.
ARTICLE 4 This Treaty shall enter into force on today’s date and shall remain in force for a period of ten years. Unless twelve months before the expiry of the said period of ten years either Contracting Party shall have given notice to the other of its intention to terminate the Treaty, this Treaty shall remain in force thereafter until the expiry of twelve months from the date on which notice of such intention is given.
IN WITNESS WHEREOF the undersigned have signed this Treaty.
DONE in duplicate at Dubai the second day of December 1971AD, corresponding to the fifteenth day of Shawwal 1391H, in the English and Arabic languages, both texts being equally authoritative.
Signed
Geoffrey Arthur Sheikh Zayed
EXPATS
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Poacher
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Honeymoonish
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What can you do?
Document everything immediately; including dates, times, locations and witnesses
Seek professional advice from a legal expert
You can report an incident to HR or an immediate supervisor
You can use the Ministry of Human Resources and Emiratisation’s dedicated hotline
In criminal cases, you can contact the police for additional support
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