Professional services firm Alvarez & Marsal has released its latest UAE Banking Pulse for Q3 2021. The report indicates that while balance sheet growth slowed down, there was a sharp rise in earnings indicating that banks are prioritizing profitability overgrowth.
Third-quarter earnings of the top ten banks pointed towards increasing profitability, higher return ratios, and an overall improved credit outlook.
The report examines the data of the 10 largest listed banks in the UAE, comparing the Q3’21 results against Q2’21 results. The ten banks 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, National Bank of Ras Al-Khaimah and Sharjah Islamic Bank.
The report indicates a strong comeback of the UAE banking sector as profitability rebounds to pre-pandemic levels with robust growth in net interest income and other income. While asset quality has improved and risk costs have declined, banks remain cautious about new loan originations. Banks’ operational efficiencies have helped their operating income growth outpace expenses. The C/I ratio decreased to its lowest level since 2018 to 31.8% as banks continued to optimize their expenses and overheads. The CoR declined (-1.8 bps QoQ), as provisioning eased on the back of an improving economic environment.
While this quarter saw better-than-expected profits, the growth in profitability appears uneven and is leaning more towards the larger banks than the mid-sized banks, Alvarez & Marsal stated.