Alvarez & Marcel Releases UAE Banking Performance Report for First Quarter of 2022

The top 10 banks in the UAE benefit from better profit margins during the first quarter of 2022

Large UAE banks reported increased lending coupled with improved asset quality

Profitability and margin levels affected with potential slowdown

Company announced Alvarez and Marsalthe global company specializing in the provision of consulting services has announced the release of its latest version of The performance report of the banking sector in the UAE for the first quarter of 2022, This indicates an increase in profitability recorded by most UAE banks during the first quarter of 2022, despite the decline in total non-interest income. While lending and advances for the ten largest UAE banks increased by 2.8% on a quarterly basis, coinciding with the economic recovery.

The report on the performance of the banking sector in the UAE shows that the ratio of loans to deposits in the first quarter of 2022 reached 84.5% compared to 82.1% in the fourth quarter of 2021. The ratio of non-interest revenue also increased by 0.6% on a quarterly basis as it remained Total net interest margin at 2.1%, due to low benchmark rates. Asset quality in UAE banks improved, with non-performing loans declining by 0.1% to 6.1% during the first quarter of the year. The profitability of the top ten banks saw a marginal decrease of 0.3%, with the return on assets remaining constant at 1.4% during the same period..

This banking sector performance report also analyzes the data of the 10 largest listed banks in the UAE, and compares the results of the first quarter of 2022 with the results recorded in the fourth quarter of 2021. The report, based on published market data from independent sources and 16 different criteria, assesses areas of The most important performance of banks, including size, liquidity, income, operating efficiency, risk, profitability and capital.

The ten largest banks included in the UAE banking sector performance report for the first quarter of 2022 by Alvarez & Marsal are: First Abu Dhabi Bank, Emirates NBD, Abu Dhabi Commercial Bank, Dubai Islamic Bank, Mashreq Bank, Abu Dhabi Islamic Bank, and Abu Dhabi Islamic Bank, Commercial Dubai, National Bank of Fujairah, National Bank of Ras Al Khaimah, and Sharjah Islamic Bank.

The most prominent trends in the results of the first quarter of 2022:

  1. The loan-to-deposit ratio has increased due to recovery in credit growth, while deposits have decreased slightly. Total loans and acquisitions increased by 2.8% on a quarterly basis in the first quarter of 2022, indicating a recovery in credit growth, supported by the economic recovery from the repercussions of the pandemic. At the same time, quarterly deposits decreased marginally by 0.1% after rising for four consecutive quarters. As a result, the total loan-to-deposit ratio increased from 82.1% in the fourth quarter of 2021 to 84.5% in the first quarter of this year..
  1. The operating income of the top ten banks saw a sharp decline of 6.4% qoq, mainly due to a 35.9% qoq decline in foreign exchange and investment-related income. However, this was partially offset by a 4.6% increase in net commission and fee income on a quarterly basis.
  2. Gross net interest margin generally remained flat at 2.05% in Q1 2022 due to lower returns from banks due to a lower interest rate broader. The return on credit also decreased marginally by 5 basis points k / k while the cost of funds on a nk / k basis remained the same at 1.0%. Six of the country’s top ten banks reported continued net interest margin contraction while the remaining banks reported marginal expansion.
  3. The cost-to-income ratio increased by 90.0 basis points on a quarterly basis to 34.4% as operating income decreased by 6.4% on a quarterly basis, a higher rate compared to operating expenses which decreased by 3.8% on a quarterly basis . Six of the top ten banks in the country reported lower cost-effectiveness, mainly driven by First Abu Dhabi Bank and Abu Dhabi Commercial Bank.
  4. The cost of risk has improved for most UAE banks. The total cost of risk decreased by 26.9 basis points on a quarterly basis, mainly due to the significant decrease in net impairment grants. Total provisions decreased by 23.6% to AED 3.5 billion on a quarterly basis. This is due to most banks recording lower provisions due to economic improvements, in addition to the expansion of the targeted economic support scheme (TESS).
  5. The gross net profit of UAE banks increased by 24.3% on a quarterly basis. Excluding a profit of AED 2.8 billion from First Abu Dhabi Bank’s sale of a stake in Magnati, however, gross net profit decreased by 2.6% on a quarterly basis. This is mainly due to the decrease in profits of First Abu Dhabi Bank and the sale of the aforementioned interest, which was affected by a decrease in operating profit by 21.7% on a quarterly basis in addition to an increase in operating expenses by 2.8% on a quarterly basis. base. As a result, the total return on equity fell slightly from 12.3% in the fourth quarter of 2021 to 11.9% in the first quarter of this year, while the return on assets remained stable at 1.4%.

Overview
The table below indicates the most important criteria used during the preparation of the report:

Category

the scale

Fourth quarter 2021

First quarter 2022

the size

Growth in loans and advances (on a quarterly basis)

-0.2%

2.8%

Deposit growth (on a quarterly basis)

1.1%

-0.1%

Liquidity

loan to deposit ratio

82.1%

84.5%

Revenue and operational efficiency

Operating income growth (quarterly basis)

1.0%

-6.4%

Operating income / assets

3.1%

2.9%

Non-interest income / operating income

37.3%

32.7%

Return on credit

5.1%

5.0%

The cost of funding

1.0%

1.0%

net interest margin

2.1%

2.1%

Cost to income ratio

33.5%

34.4%

Risks

Coverage ratio

93.3%

93.8%

risk costs

1.1%

0.8%

profitability

return on equity

12.3%

11.9%

return on assets

1.4%

1.4%

Return on risk-weighted assets

2.0%

2.0%

capital

Capital adequacy ratio

16.6%

16.7%

Source: Financial Data, Investor Offers and Alvarez & Marsal Analysis

Asad Ahmed, general manager and head of financial services in the Middle East at Alvarez & Marsal, commented on the issue: “The rise in oil prices, supportive government policies, a recovery in real estate sector indicators and the settlement of non-oil activities The International Monetary Fund revised the GDP growth estimates for the UAE for 2022 from 3.5% to 4.2% from 3.5% to 4.2%. margin to improve with the increase in benchmark interest rates With 50 basis points Deposits are also expected to grow supported by the expected interest rate increase. However, there are potential risks of deteriorating asset quality, in the last half of the year, when the targeted economic support scheme ends (TESS) of the Central Bank of the UAE in mid-2022.

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About Alvarez & Marsal:

Alvarez & Marsal provides its advisory services to companies, investors and government agencies around the world to help them achieve leadership, take appropriate action and achieve the desired results.. Founded in 1983, Alvarez & Marsal is one of the world’s leading consulting services for improving business performance and transformation management phases.. When traditional methodologies fail to transform and bring about desired change, customers turn to the company’s in-depth expertise and ability to provide practical solutions to their unique problems..

Alvarez & Marsal employs more than 5,500 elite senior consultants with global expertise spread across four continents, Alvarez & Marsal provides leading advisory services to companies, boards, private equity firms, law firms and government agencies facing complex challenges about tangible results.. Alvarez & Marsal experts and their experienced teams build on the company’s legacy to help companies make critical decisions and grow quickly and achieve results.. The company includes a group of high-level experts and consultants in the sector, as well as former employees of regulators and specialized bodies in the sector who are committed to keeping up with clients’ needs related to the transformation of change into a strategic business. asset, through risk management, and providing value at all stages of their business growth.

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