Top UAE bank profits surge in second quarter as lending jumps
Profits at the top ten UAE banks jumped by 21.25 percent in the second-quarter compared to the previous three months as they trimmed costs to cope with the impact of the coronavirus pandemic.
Despite challenging market conditions, the banks witnessed a fringe surge in loans and advances, and deposit growth according to a report from the Alvarez & Marsal (A&M) consultancy.
Still, lenders also recorded a contraction in net interest margins in the second quarter due to many factors, such as the shift to the marginal cost of the funds-based lending rate, as well as all-time low interest rates.
Net interest income, a key number for banks, fell 7.3 percent for the country’s top lenders while net fee income plunged 23 percent as lockdowns limited the income from cards and new business volumes.
It means that despite increase in profitability, the sector expects a tough year ahead.
“While the central bank expects a pickup in corporate credit demand for Q3 2020, the recovery would likely be fragile,” said A&M Head of Middle East Financial Services Asad Ahmed. “In the forthcoming quarters, it may be beneficial for banks to introduce efficiency boosting measures and increase their focus toward digitization to save costs and support the bottom-line.”
The outlook for the domestic banking sector still remains subdued as a result of the weakened after-effects of COVID-19, in addition to low oil prices, and the postponement of Expo 2020, A&M said in its report.
Dubai Islamic Bank outperformed its rivals in terms of loans and advances which grew 11 percent compared to the previous quarter, while Mashreq Bank bagged the biggest increase in deposits which also grew 11 percent.
The UAE Central Bank is supporting lenders in the country by introducing a number of liquidity-boosting and capital protection measures.
Still, lenders also recorded a contraction in net interest margins in the second quarter due to many factors, such as the shift to the marginal cost of the funds-based lending rate, as well as all-time low interest rates.
Net interest income, a key number for banks, fell 7.3 percent for the country’s top lenders while net fee income plunged 23 percent as lockdowns limited the income from cards and new business volumes.
It means that despite increase in profitability, the sector expects a tough year ahead.
“While the central bank expects a pickup in corporate credit demand for Q3 2020, the recovery would likely be fragile,” said A&M Head of Middle East Financial Services Asad Ahmed. “In the forthcoming quarters, it may be beneficial for banks to introduce efficiency boosting measures and increase their focus toward digitization to save costs and support the bottom-line.”
The outlook for the domestic banking sector still remains subdued as a result of the weakened after-effects of COVID-19, in addition to low oil prices, and the postponement of Expo 2020, A&M said in its report.
Dubai Islamic Bank outperformed its rivals in terms of loans and advances which grew 11 percent compared to the previous quarter, while Mashreq Bank bagged the biggest increase in deposits which also grew 11 percent.
The UAE Central Bank is supporting lenders in the country by introducing a number of liquidity-boosting and capital protection measures.