The UAE banking sector is setting its sights on a stable and prosperous 2024, buoyed by a year of soaring profits and robust returns in 2023. This optimistic outlook is anchored in a backdrop of stable interest rates, decreasing bad loans, and a strong GDP forecast, according to financial market analysts from leading professional services firms.
In 2023, the top 10 lenders in the UAE experienced a remarkable 28.8 percent increase in profitability year-on-year (YoY), as reported by Alvarez & Marsal. This surge in profits, which saw combined net income rise to Dh76.9 billion, was largely driven by higher interest income, a substantial growth in advances, expanding net interest margins, and improved asset quality. These findings were detailed in A&M’s UAE Banking Pulse report, which compared the FY’23 results against FY’22 for the 10 largest listed banks in the country.
Asad Ahmed, A&M managing director and head of Middle East Financial Services, noted the healthy performance of banks in 2023, marked by an increase in profitability and stronger return on investment metrics. However, he pointed out that the year ended with a slower 4th quarter. Looking forward, Ahmed anticipated a shift in the latter half of 2024 when rate reversals are expected to begin. This could potentially enhance margins in the short term as deposit costs are likely to decrease more rapidly compared to asset pricing adjustments.
Fitch Ratings echoed this positive sentiment, noting that most UAE banks reported record profitability metrics in 2023, which are expected to be mostly sustained in 2024. This outlook is supported by widened margins, healthy liquidity, and a favorable economic environment.
The S&P Global ‘GCC Banking Sector Outlook 2024’ presented a cautiously optimistic view, expecting GCC banks to maintain their well-capitalized, profitable, and liquid status despite potential geopolitical uncertainties and economic challenges. The UAE and Saudi banking systems are anticipated to lead the region in credit growth and profitability, although risks related to geopolitical tensions and real estate exposure remain.
The A&V report highlighted that while loans and advances grew by 9 percent YoY, the growth in deposits outpaced this at 13.4 percent YoY. Non-Interest Income (NII) saw a significant increase of 27.6 percent YoY. Net income also rose by 54.2 percent YoY, attributed to higher operating income, an improved Cost-to-Income ratio, and lower impairment charges. Returns on Equity (RoE) and Assets (RoA) improved notably in FY’23.
The top 10 listed banks, including First Abu Dhabi Bank, Emirates NBD, and Abu Dhabi Commercial Bank among others, experienced a slip in the Loan-to-Deposit-Ratio (LDR) to 74.9 percent. However, total operating income saw a significant increase of 28.8 percent YoY, driven by NII and non-funded income. The Net Interest Margin (NIM) expanded to 2.8 percent due to higher yields on credit.
In summary, the UAE banking sector’s performance in 2023 sets a promising stage for 2024. With the backing of favorable economic conditions and strategic financial management, the sector is poised for another year of stability and growth.
