Dubai: Profitability is likely to remain stable into 2019 four of the largest UAE banks, according to rating agency Moody’s.
Hiigher net interest income and lower provisions drove profits higher for the four largest banks in the second quarter of 2018.
“We expect core profitability for the large UAE banks to remain broadly stable over the next 12-18 months, as interest earnings hold steady at current levels, and as the decline in provisioning charges reverses due to softening business confidence,” says Nitish Bhojnagarwala, Vice President — Senior Credit Officer at Moody’s.
The big four banks — First Abu Dhabi Bank (FAB), Emirates NBD, Abu Dhabi Commercial Bank (ADCB) and Dubai Islamic Bank (DIB) — reported combined net profit of Dh8 billion ($2.2billion) in the second quarter of this year 2018, up 21 per cent year on year.
Profitability improvements were mainly driven by a 10 per cent increase in net interest income compared with the second quarter of 2017, as banks re-priced loans following a rise in interest rates. These banks also benefited from a 27 per cent year on year reduction in loan loss provisions, as they were allowed to take expected future credit losses from their capital, a one-off measure to facilitate International Financial Reporting Standards 9 (IFRS 99) adoption in the first quarter of 2018.
Operating costs rose 3 per cent quarter on quarter and 8 per cent year-on-year, mainly reflecting investments in technology to improve operational efficiency, the report said.
However, the overall cost to income ratio for the four banks was stable at 30 per cent in the second quarter, and is likely to remain stable at this level over the next 12-18 months as their technology investments begin to yield results, the report added.
