The Banking Executive Magazine - November 2022 Issue

UAE Top 100 Banks come despite a slowdown in loans and advances (L&A) growth. Aggre- gate NII surged by 12.2 percent quar- ter-on-quarter (QoQ) and NIMs improved by 18bps QoQ supported by higher credit yield on back of ris- ing benchmark rates. Asset quality improved as non-performing loans (NPL)/ L&A fell by 0.2 percent to 5.5 percent during the quarter. L&A growth was marginally up by 0.7 percent QoQ, while deposits in- creased by 5.2 percent QoQ. On balance, while Q3’22 interest rate in- crease have positively impacted banks, the impact on borrowing is more subdued, despite positive eco- nomic activity in the GCC as the; IMF revised its UAE GDP forecast upwards from 4.2 percent to 5.1 per- cent in October 2022. The country’s 10 largest listed banks analysed in A&M’s UAE Banking Pulse are First Abu Dhabi Bank (FAB), Emirates NBD (ENBD), Abu Dhabi Commercial Bank (ADCB), Dubai Islamic Bank (DIB), Mashreq Bank (Mashreq), Abu Dhabi Islamic Bank (ADIB), Commercial Bank of Dubai (CBD), National Bank of Fu- jairah (NBF), National Bank of Ras Al-Khaimah (RAK) and Sharjah Is- lamic Bank (SIB). THE PREVAILING TRENDS IDEN- TIFIED FOR Q3 2022 ARE AS FOL- LOWS: 1. Customer deposit growth, led by FAB, significantly outpaced L&A growth in Q3’22. FAB reported the highest increase in deposits of 15.1 percent QoQ, growing to AED 746bn in Q3’22. Aggregate L&A increased by 0.7 percent QoQ in Q3’22 while the deposits for top 10 banks grew at 5.2 per- cent QoQ. Consequently, the loan-to-deposit ratio (LDR) slipped 3.5 percent QoQ to 78.9 percent. 2. The operating income grew signif- icantly by 8.3 percent QoQ pri- marily driven by increased NII for the UAE banks. The NII increased substantially by 12.2 percent QoQ. The increase in other oper- ating income of 8.0 percent QoQ was offset by decrease in net fees and commission income of 7.8 percent QoQ. As a result, the ag- gregate non-interest income mar- ginally declined by 0.1 percent QoQ. 3. NIM expanded as asset yield ex- ceeded the increase in the fund- ing cost. Aggregate NIM’s improved by 18bps QoQ to 2.5 percent supported by higher yield on credit of 7.4 percent QoQ. Most of the top ten banks in UAE witnessed an expansion in NIM. Cost of funds (CoF) increased by 66bps QoQ at 1.9 percent in Q3’22 as interest expense in- creased +61.1 percent QoQ on back of higher rates. 4. Operational cost efficiencies im- proved for the top ten UAE banks for the second consecutive quar- ter. The cost-to-income (C/I) ratio improved by 1.0 percent QoQ to reach 30.5 percent. This was pri- marily due to an operating in- come increase of 8.3 percent QoQ which exceeded the 5.0 percent QoQ growth of operating expenses. 5. Cost of risk (CoR) deteriorated by 19bps QoQ as the banks, for the first time after six consecutive quarters. reported higher provi- sions of 27.8 percent QoQ. This was mainly due to an impairment charges increase of 27.8 percent QoQ in Q3’22 to AED 4.1bn. Six out of ten banks reported in- creased provisions for impair- ments following an increased cost of risk. 6. The RoE increased by 1.3 percent QoQ to 15.1 percent while RoA improved to 1.7 percent in Q3’22; attributed to an increase in profitability levels of 7.3 per- cent QoQ. Asad Ahmed, A&M Managing Direc- tor and Head of Middle East Finan- cial Services commented: “With the tailwinds of stronger economic growth and higher interest rates, UAE banks reported improved profitabil- ity. The Q3’2022 earnings momen- tum gathered pace with elevated margins, and asset quality pickup. We expect the improving trend to continue in the fourth quarter, but re- main cautious of the effect of higher rates on retail and corporate borrow- ers.” ISSUE 167 NOVEMBER 2022 the BANKING EXECUTIVE 49