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- Net income rises 24.4% to AED12.6 billion in April-June quarter
- Net interest margin (NIM) rebounds as benchmark rates rise
DUBAI – Alvarez & Marsal (A&M), the world’s leading professional services firm, has released its latest United Arab Emirates (UAE) Banking Pulse for the second quarter of 2022. The pulse shows that the top ten banks in the UAE have reported a notable rebound in quarterly profits in 2Q22, as lenders witness increased profitability driven by core interest income. Driven by higher interest income, the bank’s total interest income increased significantly by 19.5% qoq (qoq) in 2Q22. Major banks reported that total net income for the financial year rose 24.4% to AED12.6 billion.
The push and pull between loans and deposits reveals an improvement in a customer’s personal financial situation. The increase in interest income was driven by a substantial increase in advances and deposits. Total advances rose 1.8%, while deposits grew even faster at 4.5%.
Gross non-interest income (NII) increased by 15.1% mom and overall net interest margin (NIM) increased by 26.1bps mom due to higher benchmark rates. Overall asset quality improved as non-performing loans (NPL)/loans and advances (L&A) fell 0.4% to 5.7% in the quarter.
A&M’s UAE Bank Pulse examined data from the 10 largest listed banks in the UAE, comparing 2Q22 results with 1Q22 results. Using published market data from independent sources and 16 different metrics, the report assesses banks’ key performance areas, including size, liquidity, revenue, operational efficiency, risk, profitability and capital.
The 10 largest listed banks in the country analysed in A&M’s UAE Bank Pulse are First Abu Dhabi Bank (FAB), Emirates NBD (ENBD), Abu Dhabi Commercial Bank (ADCB), Dubai Islamic Bank (DIB), Mashreq, Abu Dhabi Islamic Bank (ADIB), Dubai Commercial Bank (CBD), National Bank of Fujairah (NBF), Ras Al Khaimah (RAK) and Sharjah Islamic Bank (SIB) .
This The key trends identified for the second quarter of 2022 are as follows:
1. Customer deposits growth outpaced L&A in 2Q22. Total L&A of the UAE’s top 10 banks increased by 1.8% QoQ in 2Q22, while deposits increased by 4.5% QoQ. As a result, the total loan-to-deposit ratio (LDR) dropped to 82.4% qoq in 2Q22 compared to 84.5% qoq in 1Q22.
2. The increase in operating income was mainly due to higher interest income (19.5% MoM) supported by NII such as foreign exchange income and investment income. Total operating income increased 13.6% QoQ compared to -6.4% in 1Q22. Growth was mainly driven by NII, which saw a substantial 15.1% quarter-on-quarter increase, and foreign exchange and investment-related income increased by 24.1% quarter-on-quarter.
3. The UAE banking sector’s net interest margin improved as the benchmark interest rate rose. Although NIM increased to 2.3%, it was still below the pre-pandemic level of 2.6%. Net interest margin improved by 26.1 basis points, total net interest margin increased by 15.1%, while net interest-bearing assets increased by 3.9%. Credit yield in 2Q22 increased by 84bps qoq to 5.9%, mainly due to a sharp rise in interest income +19.5% qoq due to higher interest rates. In 2Q22, the cost of capital decreased by 26.2bps QoQ to 1.3%.
4. Operational efficiency improved in 2Q22’22 despite higher operating expenses. The cost-to-income ratio (C/I) increased by 2.9 basis points sequentially to 31.5%. The decline in the C/I ratio was due to the 13.6% sequential increase in operating income, which grew faster than the 4.1% sequential increase in operating expenses. Eight out of ten UAE banks reported improved C/I ratios in 2Q22.
5. Cost of Risk (CoR) improved as total impairment charges continued to decline for the sixth consecutive quarter. Overall CoR fell by about 9.7bps QoQ to 0.72% in 2Q22, the decline was mainly due to the decrease in total provisions from AED3.5 billion in 1Q22 to -9.7% in 2Q22 to 3.1 billion dirhams.
6. Returns rose in 2Q22 as profitability improved across the board. Total net profit increased by 24.4% month-on-month, and returns such as return on equity (ROE) and return on assets (ROA) increased by 1.9 percentage points and 0.3 percentage points month-on-month, respectively.
Overview
The following table lists key metrics:
category | Metric | Q1’22 | Q2’22 |
size | Growth in Loans and Advances (MoM) | 2.9% | 1.8% |
Deposit Growth (MoM) | -0.1% | 4.5% | |
fluidity | loan-to-deposit ratio (LDR) | 84.5% | 82.4% |
Revenue and Operational Efficiency | Operating Income Growth (QoQ) | -6.4% | 13.6% |
Operating Income/Assets | 2.9% | 3.2% | |
Non-interest income/operating income | 32.7% | 31.8% | |
Yield on Credit (YoC) | 5.0% | 5.9% | |
Cost of Capital (CoF) | 1.0% | 1.3% | |
Net Interest Margin (NIM) | 2.1% | 2.3% | |
Cost-to-income ratio (C/I) | 34.4% | 31.5% | |
risk | coverage | 93.8% | 100.1% |
Cost of Risk (CoR) | 0.8% | 0.7% | |
Profitability | Return on Equity (RoE) | 11.9% | 13.8% |
Return on Assets (RoA) | 1.4% | 1.6% | |
Return on Risk-Weighted Assets (RoRWA) | 2.0% | 2.4% | |
capital | Capital Adequacy Ratio (CAR) | 16.7% | 16.4% |
Sources: Financial Statements, Investor Presentations, A&M Analysis
Mr. Asad Ahmed, Managing Director and Head of Financial Services Middle East, A&M The comment said: “The regional banking sector, including the UAE, is expected to report continued strong profitability against a backdrop of rising interest rates, improving credit quality and strong economic growth. While inflation has clearly become a global concern, firm oil prices We expect less impact in the region, against the backdrop of stronger consumer confidence and economic activity. Broad public participation in the latest wave of country-related IPOs was also a key factor in positive sentiment this quarter.”
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About Alvarez & Marsal
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