UAE’s largest banks to maintain profits over 2018: Moody’s

Four of the largest banks in the United Arab Emirates (UAE) will maintain solid profitability in the next 12 to 18 months underpinned by solid interest income, despite pressure on fee and commission income, Moody's Investors Service said in a report.

The four lenders – First Abu Dhabi Bank (FAB), Emirates NBD (ENBD), Abu Dhabi Commercial Bank (ADCB) and Dubai Islamic Bank (DIB) – reported a combined net profit of AED 6.7 billion ($1.8 billion) in Q2 2017 supported by higher net interest income.

Aggregate net profitability, meanwhile, was broadly flat versus Q2 2016, but fell 3.5 percent quarter-on-quarter (QoQ), driven by lower fee and commission income, the report said.

"Profitability was supported by higher yields on loans and stable funding costs, which drove higher net interest income, despite sluggish economic growth due to current oil prices," Nitish Bhojnagarwala, a vice-president at Moody's, said in a statement.

In Q2 2017, operating expenses across the four banks slipped 6 percent year-on-year and also QoQ.

Moody’s said it expects a broadly stable cost-to-income ratio at these banks over the next 12 to 18 months, as the lenders continue to invest in technology offsetting cost-cutting gains.

"However, provisioning charges showed a mixed trend with ENBD and FAB showing an improving trend, while ADCB and DIB posted weakening trends,” Bhojnagarwala said.

“We expect a modest rise in provisioning charges in the coming quarters, driven by the sluggish economic growth," he added.

Combined deposits at the four banks also declined slightly in Q2, by 1 percent, to AED 1 trillion ($273 billion) compared to Q1 2017.

The decline, Moody’s said, came after solid deposit growth in the UAE banking system –suggesting that liquidity pressure has been easing.

The rating agency, however, added that the oil price levels will continue to weigh on deposit growth for the next few quarters.