The UAE’s top premier Banking Institutions reported strong profit growth during the first half

  • As per the first half results analysed and reported by rating agency Moody’s, the topmost four premier banking institutions in UAE, that accounts for nearly 70 percent of the regions banking assets, reported a healthy combined net profit accounting to Dh19 billion for first half of 2019, a surge of 16 percent from same financial period during 2018.
  • The overall accumulated net profits of all four banks surged ahead by 3 percent excluding the highest ever gain at Emirates NBD. Their overall aggregate return on the total assets was reported at two percent compared to 1.9 percent for the first half of 2018.
  • Emirates NBD banks net profit scaled to 49 percent year on year and eight percent during the first half of the year, that also excluded a Dh2.1 billion gain from the partial disposal of its stake in payment processing company Network International LLC.

Profit margins with DIB and FAB surged by 13 and five percent respectively. However, the profits at ADCB fell by 15 percent as a result of more substantial funding costs and a drop in non-interest income.

As stated by Mik Kabeya, Analyst at Moody’s “The prime factors that were instrumental in pushing the combined non-interest income of the four banks up by 14 percent over the first half of 2019 was to be attributed to: –

· Higher foreign exchange trading revenues backed with the vigorous resurgent client activity and gains with respect to trading based positions.

· Surge in Investment supported banking activity as well as the higher flow of FDI (Foreign Direct Investment).

The rating agency credited improvised profitability during the first half to substantial asset-based growth, better robust non-interest income as well a sizeable on and off gain at Emirates NBD.

The overall Net Interest Income also surged up slightly as it was equally supported with solidity in lending growth as the credit growth was overall up by four percent as well it outweighed revenue pressures from price competition and expectations of lower US Federal Reserve interest rate.

Overall the combined net interest income of the four banks slightly surged by two percent over the first half of the year.

However, the four premier UAE banking giants, including Emirates NBD, admitted that in the second half of the year, all the banks are expecting to experience few moderations over the profits.

As stated by Mik Kabeya, an analyst at Moody’s, “They also stated that over the next full year on, they expect a certain slightest declining in the profitability with an increase expected in provisioning needs.

The Net Interest Income is expected to increase slightly because solid credit growth outweighing the impact of competition and the prospect of lower US Fed rates. They also expect non-interest income to remain solid, although such income source mostly tends to be more volatile than net interest income.”

Emirates NBD bank was the first among all four banks that accounted for a substantial increase of ten percent in internet interest financial gain, on quality growth that offset a slight decline in internet interest margins. DIB’s net funding financial gain surged slightly by nine percent on the back of robust quality growth through its well-established retail franchise.

FAB’s internet interest financial gain slightly declined (-1 percent) driven by a mix of competitive rating pressure, portfolio de-risking, and hyperbolic short liquidity. ADCB’s internet interest financial gain was down 6 percent year-on-year.

The non-interest financial gain of these banks rose materially due to higher foreign-exchange mercantilism revenue and investment banking activity.

“Higher foreign-exchange mercantilism revenues on the rear of consumer activity and gains on trading positions, alongside hyperbolic investment banking activity, pushed the combined non-interest financial gain of the four banks up by fourteen percent over the first half 2019. DIB fared best, as its non-interest financial coverage gain up by 35 percent,” stated Kabeya.

Rising prices and value of risk

Balance sheet data knowledge as analyzed by Moody’s showed operative prices of those banks surged ahead with modesty attributable to digital and technology investments, international enlargement, and merger integration expense. The four banks’ aggregative operative prices shot up by four percent as of June month in 2019.

“Their already sturdy overall potency ratio relation improved; however, as a result of the rise in prices, it was counterbalanced by sturdy revenue generation. The four banks’ combined cost-to-income magnitude ratio was weighed at 30.3 percent within the first half of 2019 compared to 30.7 percent within the first half of 2018,” as noted by Kabeya.

Lower recoveries and drawback loan formation materially hyperbolic loan-loss provisioning wants of those banks within the half of 2019.

The four banks’ combined loan-loss provisioning wants hyperbolic by 23 percent within the first half of 2019 compared to the first half 2018, attributable to lower write-backs and recoveries, yet as drawback loan formation in exceedingly difficult surroundings wherever the non-oil economy has, however, to get over the oil value shock.

The combined reported cost price of risk (computed as loan-loss provisions as a share of gross loans), shot hyperbolic to 69 basis points within the first half of 2019 from 58 bps in the first half of 2018.

Moody’s analysis showed DIB’s impairment charges rose by 85 percent throughout the first half the year, reflective higher provisioning charges on funding and finance assets, a lower internet unharness on non-financial assets and a small increase in drawback loans.

ENBD’s provisioning hyperbolic by 63 percent, due to lower write-backs and recoveries in exceedingly softening surroundings. FAB’s impairment loss hyperbolic slightly by one percent, reflective a delay in drawback loans formation. ADCB’s impairment charge fell half-dozen percent throughout the primary.

Capital buffers stay sturdy Capital buffers at the four banks remained sturdy, bolstered by the first half’s stable profits. The four banks’ combined Tier one capital magnitude relation stood at 16.6 percent in June 2019, whereas the combined Tangible Common Equity (TCE) to risk-weighted assets stood at 14.3 percent as of June 2019.