Alvarez & Marsal's UAE Banking Pulse Report for Q1 2018 Analyzes Performance of Banking Sector
- Overall increase in profitability due to higher return on equity (RoE) and return on assets (RoA)
- Deposits and loans & advances showed similar growth levels to Q4 2017
- Stable liquidity and loan to deposit (LDR) ratio
- Deposits grew at a similar rate (1.41 percent) as loans & advances (L&A) (1.53 percent), resulting in a stable loan-to-deposit (LDR) ratio for Q1 2018, with nine of the top 10 in the LDR “green zone” of between 80 percent and 100 percent. However, on a standalone basis, deposits growth declined. Meanwhile, six of the top banks grew their deposits market share and five grew their L&A market share
- Operating income growth declined (from 3.46 percent in Q4 2017 to -1.37 percent in Q1 2018) along with non-interest income (from 31.0 percent in Q4 2017 to 29.9 percent in Q1 2018)
- Net interest margin (NIM) declined, despite a rise in yield on credit, driven by an increased cost of funds. Five of the top 10 banks witnessed a decrease in NIM
- Cost to income ratio (C/I) improved (falling from 34.2 percent to 32.3 percent), driven by a decrease in operating expenses of 45 basis points (bps). This reversed last quarter’s increase and continued the trend from previous quarters
- Cost of risk fell significantly (from 1.04 percent in Q4 2017 to 0.81 percent in Q1 2018), due to decreased loan loss provisions
- Return on equity (ROE) and return on assets (ROA) both increased due to a decrease in cost of risk and operating expenses. This came at the expense of a decrease in capital adequacy ratio (CAR). Nine out of 10 banks showed an increase in ROE
CATEGORY | METRIC | Q4 ’17 | Q1 ‘18 |
Size | Loans and Advances Growth (QoQ) | 0.22% | 1.41% |
Deposits Growth (QoQ) | 2.47% | 1.53% | |
Liquidity | Loan-to-Deposit Ratio (LDR) | 89.2% | 89.1% |
Income & Operating Efficiency | Operating Income Growth (QoQ) | 3.46% | -1.37% |
Operating Income / Assets | 3.69% | 3.57% | |
Non-Interest Income / Operating Income | 31.0% | 29.9% | |
Yield on Credit (YoC) | 6.12% | 6.23% | |
Cost of Funds (CoF) | 1.44% | 1.51% | |
Net Interest Margin (NIM) | 2.59% | 2.55% | |
Cost-to-Income Ratio (C/I) | 34.2% | 32.3% | |
Risk | Coverage Ratio | 115% | 127% |
Cost of Risk (CoR) | 1.04% | 0.81% | |
Profitability | Return on Equity (RoE) | 14.1% | 15.8% |
Return on Assets (RoA) | 1.76% | 1.95% | |
Return on Risk-Weighted Assets (RoRWA) | 2.35% | 2.55% | |
Capital | Capital Adequacy Ratio (CAR) | 17.9% | 15.6% |
Profitability
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