Moody's - UAE banks’ profitability to be resilient amid public-sector loan growth

DIFC - Dubai, February 26, 2020 --

• The UAE's largest banks will benefit from solid public-sector loan growth this year
• They have a sizeable portion of relatively resilient foreign exchange and credit card related income

Profitability at the four largest United Arab Emirates banks is set to remain resilient in 2020, as solid public-sector loan growth balances the effects of competition and subdued private-sector credit demand, Moody's Investors Service said in a report published today.

The combined net profit of First Abu Dhabi Bank, Emirates NBD, Abu Dhabi Commercial Bank and Dubai Islamic Bank rose 13% to AED37 billion ($10.1 billion) in 2019. The four banks accounted for 73% of banking assets in the UAE as of December. Excluding ENBD's one-off gain related to the partial disposal of a stake in Network International and fair value gain on retained interest, the four banks' net profit fell 1%.

"We expect the banks' profitability to remain resilient in 2020, with a net income to tangible assets ratio at around 1.8%," said Mik Kabeya, AVP-Analyst at Moody's. "Non-interest income accounted for 30% of operating income in 2019 and will remain solid, given the sizeable portion of relatively resilient foreign exchange and credit card related income."

Net interest income increased materially in 2019, driven by loan book growth. A strong increase in public sector lending combined with acquisitions led to a 13% rise in credit growth, which outweighed a compression in net interest margins during the second half of the year. The combined net interest income of the four banks rose 6% during 2019.

The banks' technology investment and integration spending this year will be moderated by disciplined cost management, according to the report. Provisioning charges will increase noticeably as OPEC production cuts constrain hydrocarbon economic growth, while slowing global trade, moderate oil prices, strong currency and geopolitical tensions weigh on the non-hydrocarbon economy.

Copyright Press Releases 2020