Moody’s said in a new report that the net earnings of the four largest banks in the UAE; They are: “First Abu Dhabi” (awarded with a rating of Aa3, stable), “Emirates NBD” (A2, stable), “Abu Dhabi Commercial” (A1, stable) and “Dubai Islamic” (A3, stable), which it increased in the first six months from 2022, driven by higher interest income, lower accrual commissions; The operating environment in the UAE continued to recover despite global headwinds.
Nitish Bhojnagarwala, Vice President and Chief Credit Officer of Moody’s, said: “These banks acquired more than 70% of the banking assets in the country in June 2022 and generated a consolidated net profit of $ 4.4 billion (16.14 billion dirhams), a 10% increase in the 3.9 billion dollars earned in the same period of 2021 “.
Banks’ interest margin grew significantly during that period, driven by higher profit margins in an environment of high interest rates. Pressures on net interest margins driven by the change in the interest rate cycle were reflected and, as a result, higher interest income exceeded financing costs and led to an increase in net interest margin, which increased. by 20 basis points to 2.1% on an annual-year basis.
The banks also maintained high efficiency in terms of operating costs during the period; The cost / income ratio was approximately 31%. This stable performance offset the steady rise in expenses across all banks.
The cost of bank devaluation fell by another 25% in the first half of this year, after a similar decline in 2021, reflecting the UAE’s continued economic recovery. As a result, the cost of risk reached 0.7%, which is close to the 0.6% recorded in 2019. Non-performing loans remained high at around 6.5% in June 2022 compared to
4.5% in 2019.
The return on assets was 1.3% for the first half of the year, up from 1.2% in the same period of 2021, but still lower than the 1.4% recorded at the end of 2019.
Banks maintained adequate capital levels at 14.2% overall in December 2021. Lower profit generation and lower dividend yields supported hedge capital this year, despite regulatory headwinds.
profit recovery
Earnings of the four largest banks continued to pick up in the first half of 2022, approaching pre-pandemic levels, largely reflecting strong interest and non-interest income and declining loan loss provisions. The recovery was reflected in an improvement in consumer confidence with the recovery of macroeconomic conditions in the UAE, especially given the easing of restrictions linked to the pandemic, the distribution of vaccines and the increase in oil prices.
Moody’s expects the increase in net earnings of the 4 largest UAE banks will be driven more by interest margin growth, higher interest rates and a strong commercial momentum that supports non-interest income, easing provisioning requirements ; In the next 12-18 months.
Come in
Unfunded revenues of the UAE’s four largest banks increased 1.7% in the first half of this year. Given the high growth of the interest margin, the intermediation margin now represents a high percentage still at 30% of the total gross operating margin, which is lower than in the same period of 2021 (33%) and is generally in line with pre-existing levels. -pandemics; It reached 31% in 2019.
Operational expenses
The consolidated operating costs of the large banks in the United Arab Emirates increased by 10% in the first half of 2022, compared to the same period of the previous year; As personnel and IT costs have risen to drive future revenue growth and continually improve digital offerings. However, the increase was fully offset by income growth and the cost / income ratio for banks remained broadly stable at 31%.
assignments
Loan loss provisions continued to decline in the first half of the year as UAE banks emerged from the pandemic and market activity improved. Advance payments and early settlements, supported by the restoration of consumer confidence and lower-than-expected credit loss levels, reduced the pressure on provisioning fees and resulted in increased profitability.
Banks’ total cost of risk (defined as loan loss provisions divided by non-performing loans) fell to 0.7% from 1.0% for the full year 2021, although it is still above 0.6% in 2019.
However, bad bank loans remained high at around 6.5% in June 2022, while coverage ratios remained below 100%, with the exception of Emirates NBD which had a coverage ratio of 133%.
Banks maintained their capital ratios over the period despite headwinds of regulation. Strong earnings growth, low dividend payments and overall modest growth in risk-weighted assets have outweighed the negative, albeit modest, impact of new central bank regulations requiring banks to increase their risk provisions. activities on the credit exposures of the GCC.
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