UAE banks return on equity hits five-quarter high as impairments drop


The UAE’s 10 largest banks posted a strong rebound in profitability and balance sheet metrics in the second quarter of the year, as economic conditions continued to improve, according to a report by management consultant Alvarez & Marsal.
Return on equity climbed to 10.9 percent, its highest level for five quarters, from 9.8 percent in the first quarter, co-authors Asad Ahmed, head of Middle East Financial Services at A&M, and Sumit Mittal, senior director, wrote in the report. Emirates NDB and Commercial Bank of Dubai reported the highest RoE among the top 10 banks, with 12.5 percent and 13.3 percent, respectively.
A 2.8 percent quarter over quarter increase in operating income coupled with a 9.3 percent drop in impairment charges as borrowers met their obligations were the key drivers of profitability, they said.
Deposit growth outpaced loans at most banks through the second fiscal quarter of 2021 as consumers and businesses cut spending amid economic uncertainty, bolstering already robust liquidity.
Loans and advances increased by 1.9 percent QoQ, aided by a rebound in Dubai’s mortgage market, which saw an almost doubling of deal volume between December 2020 and June 2021. Deposits rose by 2.1 percent.
Aggregate net interest margin remained stable at 2.05 percent in the second quarter as industry-wide credit yields remained suppressed while cost of funding declined marginally.
The average coverage ratio – a measure of a company’s ability to cover its fixed charges – rose to 92.3 percent in the second quarter from 91.0 percent in the first three months of the year. Three of the nation’s 10 largest banks – Emirates NBD, Mashreq Bank and RAK Bank – have a coverage ratio of more than 100 percent.

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