• UAE banks continue lending momentum, focus on cost efficiency while managing asset quality
• Retail lending surged with UAE banks seeing a 19.9 percent growth in retail loans, driving overall lending up by 12.6 percent year-on-year (YoY)
• Banks continue to expand credit outlay which outpaced deposit mobilization
• Cost efficiency and asset quality shone as the cost of risk (CoR) hit a 5-year low at 0.5 percent 

Dubai – February 27, 2024 – Leading global professional services firm Alvarez & Marsal (A&M) has released its latest United Arab Emirates  (UAE) Banking Pulse for fiscal year 2024, highlighting a positive year for the UAE banking sector. The report shows that most UAE banks have demonstrated robust profitability and improved return ratios, driven by strong lending growth and higher fee income.

Lending growth accelerated to 12.6 percent YoY driven by retail loans (+19.9 percent YoY) while corporate and wholesale loans continued to account for majority of the aggregate loan book (55.5 percent). Deposits mobilization remained healthy at 10.7 percent, driven by Time deposits (+11.1 percent YoY) which increased on the back of higher interest rates environment while current account savings account (CASA) deposits improved moderately by (+8.0 percent YoY). A high interest scenario resulted in Yield on Credit (YoC) and Cost of Funds (CoF) increasing by 91bps and 130bps YoY, respectively. Overall Net Interest Margin (NIM) contracted by 130bps YoY to 2.7 percent. 

The prevailing trends identified for FY 2024 are as follows:

1. Loans & advances (L&A) growth for the top 10 banks improved by 12.6 percent YoY, while deposits growth moderated to 10.7 percent YoY. Consequently, Loan-to-Deposit-Ratio (LDR) increased by 130bps to 76.2 percent, driven by higher lending which outpaced deposit growth.

2. Banks’ aggregate operating income rose by 10.7 percent driven by robust growth in fees and commission income (+22.0 percent YoY).

3. Net interest margin (NIM) declined marginally by 12bps to 2.7 percent amid an environment of falling interest rates; Yield on Credit (YoC) and Cost of Funds (CoF) increased by 70bps and 60bps YoY, respectively.

4. Cost-to-income (C/I) ratio deteriorated marginally by 24bps YoY as aggregate operating expenses increased by 11.7 percent YoY, slower than operating income growth.

5. Coverage ratio declined marginally to 104.0 percent while cost of risk (CoR) reached a five-year low (down by 25bps YoY), driven by lower loan loss provisioning requirements as asset quality improved.

6. As profitability ratios of banks deteriorated, return on equity (RoE) as well as return on assets (RoA) declined by 1.0 percent and 0.1 percent YoY, respectively.

OVERVIEW

The table below sets out the key metrics: 

Mr. Asad Ahmed, A&M Managing Director, Financial Services commented: “Last year saw continued lending growth, primarily driven by a rise in retail loans. Despite a relatively high-interest environment, UAE banks have maintained healthy deposit mobilization and demonstrated strong cost efficiency and asset quality. Although net profitability has seen some pressure, the overall outlook remains positive. As anticipated, rate cuts by the Central Bank of the UAE (CBUAE) have commenced, aligning with the U.S. Federal Reserve's actions. These cuts, coupled with robust economic growth driven by consumer spending, tourism, and construction, positions UAE banks well for continued earnings growth into 2025.”

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ENDS

Notes to editors:

Methodology:

A&M’s UAE Banking Pulse examines data from the 10 largest listed banks in the UAE, comparing the Q2’24 results against Q1’24 results. Using independently sourced published market data and 16 different metrics, the report assesses banks’ key performance areas, including size, liquidity, income, operating efficiency, risk, profitability, and capital. 

The report also offers an overview of the key developments affecting the banking sector in the UAE and further analysis with a segment view of loans & assets, deposit mix and a stage–wise breakdown of the lending book.

The country’s 10 largest listed banks analyzed 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 Fujairah (NBF), National Bank of Ras Al-Khaimah (RAK) and Sharjah Islamic Bank (SIB).  

About Alvarez & Marsal

Companies, investors and government entities around the world turn to Alvarez & Marsal (A&M) for leadership, action and results. Privately held since its founding in 1983, A&M is a leading global professional services firm that provides advisory, business performance improvement and turnaround management services. When conventional approaches are not enough to create transformation and drive change, clients seek our deep expertise and ability to deliver practical solutions to their unique problems.

With over 10,000 people providing services across six continents, we deliver tangible results for corporates, boards, private equity firms, law firms and government agencies facing complex challenges. Our senior leaders, and their teams, leverage A&M’s restructuring heritage to help companies act decisively, catapult growth and accelerate results. We are experienced operators, world-class consultants, former regulators and industry authorities with a shared commitment to telling clients what’s really needed for turning change into a strategic business asset, managing risk and unlocking value at every stage of growth.

To learn more, visit: AlvarezandMarsal.com.