The UAE Central Bank reported a significant increase in the profitability of the banking sector in the first quarter of 2024. The sector’s profitability jumped by 9.3 per cent to Dh20.8 billion, driven by lower impairment charges and higher operating income. Non-core income and lower operational costs also contributed to this increase, according to a report by Alvarez & Marsal.
Deposits in UAE banks saw a 5.1 per cent increase in the first quarter of 2024 compared to the previous quarter, signaling a positive trend in the sector. Asad Ahmed, A&M managing director, attributed the profitability of the top 10 UAE banks to improved cost efficiencies, lower provisions, and higher non-operating income. Despite a static benchmark interest rate, the sector has shown resilience and maintained profitability.
The UAE banking sector’s asset quality remains sensitive to the high-interest rate environment, with the Central Bank of the UAE anchoring its benchmark rate to the US fed at 5.4 percent. The report analyzed top banks in the UAE, including First Abu Dhabi Bank, Emirates NBD, and Dubai Islamic Bank, among others. The Central Bank anticipates further growth in the banking sector in 2024, with total assets of banks reaching a record Dh4.1 trillion in 2023.
Fitch Ratings analysts predict that the UAE banking sector will experience growth driven by robust credit demand from non-oil sectors and economic diversification programs. While net interest income declined marginally in the first quarter of 2024, non-core income increased significantly, supporting overall operating income. Loans and advances in the sector also saw growth, reaching pre-Covid levels.
Impairment charges saw a significant decline of 47.9 per cent in the first quarter of 2024, while deposit mobilization outpaced credit demand. Operating income for the sector increased, driven by a surge in non-core income. However, the net interest margin of the top 10 banks declined due to lower loan-to-deposit ratios and shrinking spreads. The cost efficiency in the banking sector improved, with none of the top banks reporting a deterioration.
More than 50 percent of banks reported an improvement in the cost of risk, settling at 0.4 percent. Total impairments declined by 47.9 percent to Dh2.0 billion in the first quarter of 2024. Despite challenges in the global economy, the UAE banking sector remains resilient and poised for continued growth in the coming years. With a focus on diversification and efficiency, the sector is expected to drive economic development and financial stability in the UAE.
