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Profitability of 4 UAE banks remains solid in Q2 – Moody’s

Profitability of 4 UAE banks remains solid in Q2 – Moody’s
Profitability was supported by higher yields on loans and stable funding costs

Dubai – Mubasher: The solid interest income will maintain the profitability of the four largest UAE banks in the next 12 to 18 months, despite pressure on fee and commission income, Moody’s Investors Service stated on Tuesday.

First Abu Dhabi Bank (FAB), Emirates NBD (ENBD), Abu Dhabi Commercial Bank (ADCB), and Dubai Islamic Bank (DIB) achieved a combined net profit of AED 6.7 billion in Q2-17, as aggregate net profitability was flat year-on-year, but fell 3.5% quarter-on-quarter.

"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.

Operating expenses at the four banks were 6% lower quarter-on-quarter, as well as year-on-year, with cost to income ratios expected to remain stable due to the banks’ investment in technology offsetting cost-cutting gains.

Combined deposits declined by 1% to AED 1 trillion compared to Q1-17, and it is likely that oil price levels will weigh on deposit growth in the coming quarters.

"However, provisioning charges showed a mixed trend with ENBD and FAB showing an improving trend, while ADCB and DIB posted weakening trends. We expect a modest rise in provisioning charges in the coming quarters, driven by the sluggish economic growth," Nitish added.