The UAE's leading banks demonstrated robust capital positions and improved asset quality in the second quarter of 2024, according to Alvarez & Marsal's latest UAE Banking Pulse report.
Profitability surged to AED 21.5 billion, driven by increased net interest income (NII) and a significant reduction in impairment charges, which dropped by 35.4% quarter on quarter (QoQ).
The report highlights a 2% QoQ rise in NII, despite stable interest rates, attributed to a higher loan-to-deposit ratio (LDR). Total operating income experienced a modest 0.4% QoQ growth, as non-interest income fell by 2.9% QoQ. Return on equity (RoE) expanded by 48 basis points to 12.3%, while return on assets (RoA) remained stable at 2.2%.
Loan and advance growth was moderate at 3.2% QoQ, with retail lending increasing by 8% QoQ. Deposit mobilization, however, slowed, leading to a 2% QoQ rise in LDR to 75.8%. The credit demand exceeded deposit growth, contributing to the higher LDR.
Key trends for Q2 2024 include:
- Credit Demand vs. Deposits: Aggregate loans and advances grew by 3.2% QoQ, outpacing a 0.4% QoQ increase in deposits. This led to a 2% QoQ rise in LDR.
- Operating Income: The slight 0.4% QoQ increase in operating income was tempered by a 2.9% QoQ decline in non-interest income. The non-interest income to total operating income ratio stood at 32.5%.
- Net Interest Margins: NIMs remained largely flat, contracting slightly by 1 basis point QoQ to 2.65%. The yield on credit rose by 8 basis points, while the cost of funds increased by 13 basis points.
- Cost Efficiency: The cost-to-income ratio deteriorated by 19 basis points QoQ to 28.1%, due to slower growth in operating income compared to operating expenses.
- Cost of Risk: CoR improved to a multi-year low of 0.3%, with total impairments falling by 35.4% QoQ to AED 1.3 billion.
Asad Ahmed, A&M Managing Director and Head of Middle East Financial Services, remarked,
“UAE banks continue to show strong performance with growth in lending and improved asset quality. With a capital adequacy ratio of 17.6%, the sector remains well-capitalized. We anticipate banks will need to adjust to potential rate cuts and focus on non-interest income and digital initiatives to enhance cost efficiency.”
The Central Bank of the UAE maintained its benchmark interest rate at 5.4%, aligned with the US Fed rate, with potential rate cuts expected in the near future.
News Source: Emirates News Agency
