Wednesday 29, November 2017 by Jessica Combes

A&M releases UAE Banking Pulse report analysing Q3 2017 banking sector performance


Leading global professional services firm Alvarez & Marsal (A&M) today released its fourth UAE Banking Pulse, which shows that UAE banks are generally performing well, with overall profitability higher. Almost all of the metrics applied by the UAE Banking Pulse have risen quarter on quarter, suggesting that banks have successfully adapted to the market conditions created by a lower oil price environment, growing their loan books and are continuing to manage their costs sensibly.

This UAE Banking Pulse report compares the quarterly data of the 10 largest listed UAE banks in the third quarter of 2017 (Q3 2017) against the second quarter of 2017 (Q2 2017), and identifies prevailing trends throughout the intervening period.

The report uses independently-sourced published market data and 16 different metrics to assess the key performance areas including size, liquidity, income, operating efficiency, risk, profitability and capital. 

The banks analysed in A&M’s UAE Banking Pulse include First Abu Dhabi Bank (FAB), Emirates NBD (ENBD), Abu Dhabi Commercial Bank (ADCB), Dubai Islamic Bank (DIB), Mashreq Bank (Mashreq), Abu Dhabi Islamic Bank (ADIB), Union National Bank (UNB), Commercial Bank of Dubai (CBD), National Bank of Ras Al-Khaimah (RAK), and the National Bank of Fujairah (NBF).

The underlying theme is a rise in profitability, on the back an increase in loans and advances, and a rise in yield on credit. The result was higher levels of interest income and, with costs remaining steady and a lower cost of funding, banks saw higher returns on equity.

Trends identified:

  1. Loans and advances (L&A) for the top 10 banks grew at a faster rate (1.26 per cent) than deposits (0.6 per cent), meaning that 8 of the top 10 banks increased their Loan-to-Deposit ratios.
  2. Operating income growth increased on the back of a rise in interest income following increased lending activity; all 10 banks reported growth in interest income
  3. Net interest margin increased from 2.52 per cent to 2.61 per cent on the back of an increase in yield on credit and LDR, and also driven by the rise in interest rates; 8 of the top 10 banks improved their NIM
  4. Banks’ cost-to-income ratio remained relatively flat from 32.9 per cent to 32.8 per cent, as banks continued to manage their cost bases sensibly; 7 of the top 10 banks reduced their C/I compared to Q2’17
  5. Overall cost of risk declined, driven by lower provisioning and increased loan portfolios, although four banks actually increased their cost of risk;
  6. RoE increased as a result of higher levels of interest income and increased income margins and leverage

A&M Managing Directors in the firm’s Financial Institutions Advisory Services practice Dr. Saeeda Jaffar and Asad Ahmed served as lead author and co-author respectively. Neil Hayward, a Managing Director, specialising in turnaround and restructuring, also served as a co-author.

 “The return to growth which we previously anticipated has now started to be seen, as banks have steadily adapted to the new normality of the current oil price environment. The housekeeping measures which we saw many banks implement last year were on the back of fears that the operating environment would worsen significantly, but it has not turned out to be as bad as was expected. This has led to an increase in lending activity and with cost bases stabilised by those housekeeping measures, the result has been higher profitability and better returns on equity. Nevertheless, although these are positive findings, we would encourage banks not to use them as a reason to invest too aggressively nor seek to grow much faster than this,” said Jaffar.



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