KHALEEJ TIMES, Thursday, Aug 27, 2020 | Muharram 8, 1442
Top 10 UAE banks post 21.2% surge in profit
Emirates:
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 all-time 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.
|