Alvarez & Marsal: The profitability of the 10 largest banks in the Emirates increased during the first quarter of 2021 – the economist – the UAE economy

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Alvarez & Marsal, the global company specialized in providing advisory services, has released the “Performance of the Banking Sector in the UAE” report for the first quarter of 2021.

The report highlights the top ten banks in the UAE, with total net income increasing by 85% on a quarterly basis, due to lower operating expenses and impairment costs that supported overall profitability. The UAE’s strong financial and external positions continue to support the fundamentals of the banking sector.

The Banking Sector Performance Report, prepared by Asad Ahmed, General Manager and Head of Middle East Financial Services at Alvarez and Marsal, examines the data of the 10 largest listed banks in the UAE, and compares the results of the first quarter of 2021 with the previous results of the fourth quarter of 2020.

The top ten banks listed in the country analyzed in the UAE Banking Sector Performance Report are: First Abu Dhabi Bank, Emirates NBD, Abu Dhabi Commercial Bank, Dubai Islamic Bank, Mashreq Bank, Abu Dhabi Islamic Bank, Commercial Bank of Dubai, National Bank of Fujairah, Ras Al Khaimah National Bank and Sharjah Islamic Bank.

Highlights

Loans and advances decreased by 0.7% on a quarterly basis, while deposits increased by 1.2% on a quarterly basis in the first quarter of 2021.

The gross loan to deposit ratio decreased to 84.5% in the first quarter of 2021 compared to 86.2% in the fourth quarter of 2020. Operating income increased by 1.3% on a quarterly basis, mainly due to the decrease in net interest income. This was partially offset by a 5% qoq decline in net interest income due to lower interest rates.

Emirates NBD recorded the highest increase in total operating income, by more than 25% on a quarterly basis, as fee income grew by 42% due to greater business volume.

8 of the top 10 banks recorded a decrease in the cost of risk, as the improvement in the macroeconomic environment led to lower provisions. Total loan loss provisions decreased by 36.1% on a quarterly basis in the first quarter of 2021.

The cumulative net income increased by 84.8% compared to the previous quarter due to the significant decrease in provisions for impairment in addition to operating expenses.

The total return on equity improved from 5.0% in the fourth quarter of 2020 to 9.7% in the first quarter of 2021, as net income increased by 85% on a quarterly basis.

Asad Ahmed said: The UAE banking sector witnessed a significant improvement in profitability in the first quarter of 2021, and this trend is likely to continue in subsequent quarters.

The targeted economic support program, which was extended by the UAE Central Bank until June 2022, is expected to help relieve pressure on banks’ balance sheets until the second quarter of 2022.

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