UAE banks maintain their position in the Green Zone
Alvariz & Marsal, the global consulting firm, yesterday launched a report entitled "Performance of the Banking Sector in the UAE in the First Quarter 2019".
Banks' performance shows good profit rates despite existing economic challenges. The increase in profits was the main indicator of banks' performance during the first quarter of this year, boosted by the growth of loans and advances and the stability of the return on credit.
The report points to a rise in total operating income compared to the fourth quarter of 2018, supported by non-interest income offsetting the decline in interest income. The cost-to-income ratio was lower, supported by lower cost and higher quarterly revenues. The nine listed banks included Abu Dhabi First Bank, Emirates NBD, Abu Dhabi Commercial Bank, Dubai Islamic Bank, Mashreqbank, Abu Dhabi Islamic Bank, Commercial Bank of Dubai, National Bank of Ras Al Khaimah and National Bank of Fujairah.
"Although liquidity is likely to decline over the coming months, we expect a balanced performance of the sector with a focus on high quality assets and improved profitability," said Dr. Saida Jaafar, Managing Director, Strategic Performance Improvement. This contraction can help banks develop new business models based on cost-impact factors. "
The report concluded that the growth of loans and advances in the first nine banks increased by 1.54% and faster than deposits, which decreased by 0.67% after witnessing continuous growth in the last six quarters. The ratio of loans to deposits increased by 88.3% with 8 out of 9 banks maintaining their place in the Green Zone by 80% – 100%.
Liquidity is expected to continue to achieve stable rates in 2019. Operating income growth rates have increased significantly as a result of increased non-interest income after lending increased.
The net interest margin continued to decline during the first quarter as a result of higher financing costs, stable return on credit and higher loan-to-deposit ratio. Six out of 9 banks recorded a decrease in the net interest margin. Liquidity rates have been reduced due to lower deposits and increased cost of financing.
The report noted the low cost to income ratio from 33.5% to 31.5% in six out of nine banks. As a result of increased operating income, in addition to reducing sales and general administrative costs in some banks.
The cost-to-income ratio declined after quadrupling in 2018. The report pointed to the continued increase in the cost of risk from the fourth quarter of 2018. This increase continues due to higher provisions for loan losses, although four banks were able to reduce the cost Love. For its part, the coverage ratio continues to decline.
The report concluded that rates of return on shareholders' equity have maintained high ratios despite increased cost of financing and higher operating income. This has led to stable return on credit and increased capital adequacy ratio. Six indicators out of nine banks showed an increase in return on equity.
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