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UAE Banks Set for Robust Profit Growth in 12-18 Months

The four largest UAE banks, namely First Abu Dhabi Bank, Emirates NBD Bank, Abu Dhabi Commercial Bank, and Dubai Islamic Bank, representing 77 percent of banking assets as of March 2023, reported a combined net profit of $7.4 billion in the first half of the year. This marked a significant increase from the $4.4 billion recorded during the same period in 2022.

Moody’s Investors Service anticipates further profitability growth in the remainder of the year. Factors such as high-interest rates, robust business activity, steady provisions, and rising operating costs are expected to sustain net profits.

The surge in net profit was attributed to elevated interest and non-interest income, buoyed by robust business activity.

The UAE’s resilient economy contributed to a 37 percent year-over-year rise in net interest income, outweighing the growth in funding costs. Moody’s analysts predict continued net profit growth in the next 12-18 months, though at a slower pace, as high-interest rates support net interest income and strong business momentum fosters non-interest income. This will balance rising operating costs, while provisioning charges are expected to normalize.

Low-cost current and savings accounts significantly contributed to funding, elevating net interest margins to 2.4 percent for H1 2023 from 1.9 percent a year earlier.

Non-interest income of the top four banks combined increased by 41 percent, mainly driven by trading and fee-generating activity growth of 11 percent. Non-interest income accounted for 31 percent of the banks’ overall operating profit.

Efficiency improvements were observed, with higher operating income offsetting increased costs, leading to an improved cost-to-income ratio of approximately 27 percent. Loan-loss provisions remained below peak 2020 levels.

Strong capital buffers were maintained, with a tangible common equity ratio of 15.1 percent as of June 2023, supported by robust earnings.

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