A newly released report from the agency showed that the net profits of the major banks in the UAE, which are First Abu Dhabi Bank, Emirates NBD, Abu Dhabi Commercial Bank and Dubai Islamic Bank, which together represent 77 percent of banking assets in the UAE, rose in the first six months of 2023 to 7.4%. billion, up from $4.4 billion for the same period last year, primarily driven by strong growth in interest and non-interest income with higher turnover and business momentum.
For her part, Francesca Paolino, an analyst at the agency, said that the upward trend in income resulted from increased consumer confidence as macroeconomic conditions remain strong, as a result of high oil prices, in addition to the UAE’s strong activity in non-oil sectors, such as trade, tourism and real estate.
jump in net revenue
Moody’s says higher interest rates and increased turnover, while the UAE economy remains strong, contributed to net interest income rising 37 percent year-on-year. The growth in interest income outpaced the growth in the cost of financing, as current accounts and low-cost savings accounts remained a significant contributor to bank financing, which led to a rise in net interest margins to 2.4 percent for the first half of 2023 from 1.9 percent in the previous year.
In contrast, total non-interest income increased by 41 percent, driven by significant gains in trading and fee activity, which grew by 11 percent. This income contributed 31 percent of the total operating profits of the four banks.
The report showed that the consolidated operating expenses of the major banks increased by 19 percent, compared to last year, due to higher staff costs and investments in technology, but the increase in operating income (by 38 percent) offset the increase in costs, and the banks announced an improvement in the “cost to ratio” Income,” which was 27 percent.
Provisions for loan losses remained below their peak in 2020.
The combined impairments of the four banks were stable and below epidemic levels, reflecting higher provisions at two of the banks, to account for impairment on a few corporate accounts, against low and stable fees at the other two banks, driven by strong recoveries.
The total cost of risk for banks was below pandemic levels at 0.7 percent of total loans in the first half of 2023. The final profitability will increase further.
Return on assets improved to 2.0% for the first half of 2023, much higher than the first half of 2022 level of 1.3%. Higher interest rates and business activity, along with higher operating costs and fixed provisions, will continue to support the bottom line. The core capital reserves are also supported by higher profits.
The banks maintained strong capital reserves with an overall tangible equity ratio of 15.1 percent, as of June 2023.
Strong earnings contributed to higher core capital reserves, outpacing the growth in risk weighted assets.
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