Arab News, Thursday, Aug 26, 2021 | Muharram 18, 1443
UAE banks return on equity hits five-quarter high as impairments drop
Emirates:
The UAE’s 10 largest banks
posted a strong rebound in profitability and balance sheet metrics in the second
quarter of the year, as economic conditions continued to improve, according to a
report by management consultant Alvarez & Marsal.
Return on equity climbed to 10.9 percent, its
highest level for five quarters, from 9.8 percent in the first quarter,
co-authors Asad Ahmed, head of Middle East Financial Services at A&M, and Sumit
Mittal, senior director, wrote in the report. Emirates NDB and Commercial Bank
of Dubai reported the highest RoE among the top 10 banks, with 12.5 percent and
13.3 percent, respectively.
A 2.8 percent quarter over quarter increase in
operating income coupled with a 9.3 percent drop in impairment charges as
borrowers met their obligations were the key drivers of profitability, they
said.
Deposit growth outpaced loans at most banks
through the second fiscal quarter of 2021 as consumers and businesses cut
spending amid economic uncertainty, bolstering already robust liquidity.
Loans and advances increased by 1.9 percent QoQ,
aided by a rebound in Dubai’s mortgage market, which saw an almost doubling of
deal volume between December 2020 and June 2021. Deposits rose by 2.1 percent.
Aggregate net interest margin remained stable at
2.05 percent in the second quarter as industry-wide credit yields remained
suppressed while cost of funding declined marginally.
The average coverage ratio – a measure of a
company’s ability to cover its fixed charges – rose to 92.3 percent in the
second quarter from 91.0 percent in the first three months of the year. Three of
the nation’s 10 largest banks – Emirates NBD, Mashreq Bank and RAK Bank – have a
coverage ratio of more than 100 percent.
The other seven lenders in the report are First
Abu Dhabi Bank, Abu Dhabi Commercial Bank, Dubai Islamic Bank, Abu Dhabi Islamic
Bank, Commercial Bank of Dubai.