Description:
UAE’s top banks showcased impressive performance in Q2 2024, with improved asset quality and increased profits. The Alvarez & Marsal report highlights key metrics, including higher net income, lower impairment charges, and sustained credit growth. The article delves into interest rate dynamics, deposit and credit trends, operating efficiency, and the sector’s future outlook.
Subtitle 1: Robust Financial Performance and Credit Growth
The aggregate net income of the top ten UAE banks rose by 2.9 percent quarter-on-quarter to AED 21.5 billion in Q2 2024. This growth was driven by higher net interest income and lower impairment charges, which decreased by 35.4 percent. Credit demand outpaced deposits mobilization, with aggregate loans and advances growing by 3.2 percent, compared to deposits growth of 0.4 percent. This led to an increase in the loan-to-deposit ratio by 2 percent to 75.8 percent.
Despite stable interest rates, net interest income grew by 2 percent due to a higher loan-to-deposit ratio. The Central Bank of the UAE maintained its benchmark interest rate at 5.4 percent, with market expectations suggesting the first rate cut may occur in September 2024. Total operating income increased marginally by 0.4 percent, while non-interest income declined by 2.9 percent.
Subtitle 2: Improved Asset Quality and Future Outlook
The cost of risk continued to improve, reaching a multi-year low of 0.3 percent in Q2 2024, with total impairments declining by 35.4 percent to AED 1.3 billion. The capital position of the banks remains robust, with aggregate Capital Adequacy Ratio levels at 17.6 percent.
Asad Ahmed, A&M Managing Director and Head of Middle East Financial Services, noted that UAE banks are well-capitalized and continue to show strong performance. However, banks are expected to take precautionary provisioning as asset quality remains sensitive at the peak of the interest rate cycle. There is also an emphasis on growing non-interest income as net interest margins may come under pressure with anticipated rate cuts. Banks are expected to benefit from their investments in digital initiatives, leading to improved cost efficiency in the future.
