Banks focus on increasing lending and growing revenues; liquidity at healthy levels, with Loan to Deposit Ratios continuing slight decline; sector continues to de-risk, supported by decreasing cost of risk and stronger balance sheets

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June 8, 2017

Dubai – 8 June 2017 – Leading global professional services firm Alvarez & Marsal (A&M)’s today released its second UAE Banking Pulse, which compares the quarterly data of the 11 largest listed UAE banks in the first quarter of 2017 (Q1 2017) against the last quarter of 2016 (Q4 2016), as well as identifying prevailing trends throughout the intervening period.

The banks analysed in A&M’s UAE Banking Pulse include National Bank of Abu Dhabi (NBAD), Emirates NBD, Abu Dhabi Commercial Bank (ADCB), First Gulf Bank (FGB), Dubai Islamic Bank, Union National Bank, National Bank of Ras Al-Khaimah (RAKBANK), Commercial Bank of Dubai, Abu Dhabi Islamic Bank, Mashreq Bank – and a new addition – National Bank of Fujairah (NBF).

Using independently-sourced published market data, the report applies a series of metrics and key performance indicators to identify a number of industry trends. The insights will help inform all those interested in the state of the country’s banking sector, from equity analysts, rating agencies, borrowers and lenders, to C-suite executives.

In total, A&M’s Banking Pulse uses 17 different metrics to assess the key performance areas of these banks, which cover size, liquidity, revenue, operating efficiency, risk, profitability and capital.

A&M’s Banking Pulse is authored by Dr. Saeeda Jaffar (lead author) and Asad Ahmed (co-author), Managing Directors in A&M’s Financial Institutions Advisory Services Practices, as well as Stephen Millington (co-author), Managing Director and head of A&M’s Middle East practice, specializing in financial investigations and disputes.


The table below (which is explained in more detail on page 4 of Banking Pulse) sets out the key metrics applied, with some of the major trends identified.

The underlying theme is while net interest margins (NIM) remain under pressure, banks have grown their loan books with a significant return to lending.  Liquidity remains healthy and cost of risk has decreased.

8 of the top 11 banks had Loan to Deposit Ratios (LDRs) of between 80% and 100%, the industry’s so called “green zone”.  However, with deposits growing at a faster rate, the net effect has been an overall reduction in LDRs. 

The combination of this, together with lower Yield on Credit (YoC) and increasing Cost of Funds (CoF), has led to a decline in NIMs.

The increase in lending has contributed to an overall increase in revenues and with banks also continuing to monitor their cost bases, in some case delaying investment and hiring decisions, Cost / Income (C/I) ratios have shown an overall improvement.

Return on Equity has also increased.  This has been driven primarily by a reduction in capital base due to payment of dividends to shareholders, which takes place in the first quarter of the year.

Cost of risk decreased after stabilizing in Q4 ’16, but remained higher than its Q1 ‘16 level of 0.94%. This was driven more by the growth in loans and advances, rather than a decrease in provisions. Furthermore, net provisions for some banks were driven down by reversals in provisions previously taken. Skip cases have also declined significantly over the last quarter and the quality of banks’ retail portfolios appears to be stabilizing.



Q4 ’16

Q1 ’17


Loans and Advances Growth (QoQ)



Deposits Growth (QoQ)




Loan-to-Deposit Ratio (LDR)



Revenue & Operating Efficiency

Operating Revenue Growth (YoY)



Operating Income / Assets



Non-Interest Income / Operating Income



Yield on Credit (YoC)



Cost of Funds (CoF)



Net Interest Margin (NIM)



Cost-to-Income Ratio (C/I)




Coverage Ratio



Cost of Risk (CoR)




Return on Equity (RoE)



Return on Assets (RoA)



Return on Risk-Weighted Assets (RoRWA)




Tier 1 Capital Ratio



Capital Adequacy Ratio (CAR)





  1. QoQ and YoY Stands for quarter over quarter and year over year change respectively
  2. Growth in loans & advances and deposits was presented QoQ instead of YoY
  3. Quarterly revenues were used in the calculation of operating revenue growth
  4. Definition of funding used in the calculation of CoF have been modified to include more granularity, details presented in appendix

Source: Financial statements, investor presentations, A&M analysis

Trends identified:

  1. A majority of banks took a balanced approach of growing their loan books and deposit bases simultaneously
  2. Driven by a decrease in LDR and YoC, and increasing CoF, NIM has remained under pressure
  3. C/I decreased on the back of growing revenues, and continued prudent cost management
  4. Risk metrics continue to strengthen, with cost of risk continuing to decrease
  5. Average year-on-year RoE decreased, as overall profitability remained below 2015 levels
  6. CAR decreased quarter-on-quarter as a result of equity reduction, but remained higher than the Q1 2016 levels and well above the regulatory requirements

Dr. Saeeda Jaffar commented:

“The over-riding theme of the most recent quarter is very much revenue based.  Banking revenues have risen on the back of increased lending, which has been a key area of focus for the sector and means that liquidity as measured by LDR remains at healthy levels. However, this has in turn contributed to a more competitive environment, leading to a reduction in interest income, reducing yields on credit. When combined with increased cost of funding incurred in growing loan books, this has impacted Net Interest Margins. 

“We noted in our previous report that Cost/Income ratios were improving, and that continued to be the case in the last quarter.  Again, though, this is a revenue story more than a cost one, so we cannot be certain at this stage of that trend continuing.  While banks have certainly been careful with their costs, in some cases delaying investment and hiring decisions, these investments may be made during the year, and that could drive C/I ratios up. 

“The de-risking of the sector has continued, with cost of risk continuing to decrease, and this is an encouraging trend.  UAE banks also continue to deliver returns on equity that are significantly higher than the global average.

“Overall, therefore, the emerging signs of recovery which we detected in our inaugural banking Pulse are again visible and recent upgrades of the UAE’s credit ratings are also contributing to the growing air of confidence. There is every reason to believe we will see this trend continuing during the rest of this year.”

The full report is available for download here.

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