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Abu Dhabi, UAEMonday 24 September 2018

UAE banks less profitable in Q4 as costs trump income, Alvarez & Marsal says

A report finds deposits increased amid rising rates but loans slowed

UAE bank profitability slipped in the fourth quarter of 2017. Mona Al-Marzooqi / The National
UAE bank profitability slipped in the fourth quarter of 2017. Mona Al-Marzooqi / The National

UAE banks were less profitable in the fourth quarter of 2017 than the third quarter as costs rose at a faster rate than operating income, according to the global consultants Alvarez & Marsal.

Deposits at banks, however, rose at a faster rate in the fourth quarter than in the third quarter as rising interest rates lured more cash into the lenders, but the pace of loan growth slowed. This suggests that while banks are flush with cash, businesses are still not that enthusiastic about tapping debt to fund growth.

“Although profitability in the final quarter of the year saw a modest reduction compared with the previous quarter, this was mainly due to a more conservative approach adopted by the banks, as demonstrated in an increased cost of risk,” said Saeeda Jaffar, a managing director in the firm’s Financial Institutions Advisory Services practice.

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When it came to the profitability of banks in the fourth quarter, return on equity slipped to 14.3 per cent compared to 15.1 per cent in the third quarter. In the same period, return on assets declined to 1.76 per cent versus 1.83 per cent in the third quarter. Return on risk weighted assets slipped 2.35 per cent versus 2.41 per cent in the same period.

Meanwhile, deposits rose 2.47 per cent in the fourth quarter versus growth of 0.61 per cent in the third quarter while loans and advances grew 0.22 per cent compared to 1.26 per cent in the same period.

The report, the UAE Banking Pulse, analyses data from First Abu Dhabi Bank, Emirates NBD, Abu Dhabi Commercial Bank, Dubai Islamic Bank, Mashreq Bank, Abu Dhabi Islamic Bank, Union National Bank, Commercial Bank of Dubai, National Bank of Ras Al-Khaimah and the National Bank of Ras Al-Khaimah and the National Bank of Fujairah.

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