Alvarez & Marsal Releases UAE Banking Pulse Report for Q1 2019
- Sector continues to perform well with higher profitability
- Bank loan growth picks up pace even as deposits fall
- Tightening liquidity expected in near to medium term over shrinking net interest margins (NIMs)
CATEGORY |
METRIC |
Q4 ’18 |
Q1 ‘19 |
Size |
Loans and Advances Growth (QoQ) |
0.50% |
1.54% |
Deposits Growth (QoQ) |
1.77% |
-0.67% |
|
Liquidity |
Loan-to-Deposit Ratio (LDR) |
86.4% |
88.3% |
Income & Operating Efficiency |
Operating Income Growth (QoQ) |
1.29% |
3.09% |
Operating Income / Assets |
3.50% |
3.55% |
|
Non-Interest Income / Operating Income |
29.4% |
32.6% |
|
Yield on Credit (YoC) |
7.13% |
7.12% |
|
Cost of Funds (CoF) |
2.12% |
2.18% |
|
Net Interest Margin (NIM) |
2.51% |
2.44% |
|
Cost-to-Income Ratio (C/I) |
33.5% |
31.5% |
|
Risk |
Coverage Ratio |
114.2% |
110.1% |
Cost of Risk (CoR) |
0.80% |
0.84% |
|
Profitability |
Return on Equity (RoE) |
14.81% |
15.56% |
Return on Assets (RoA) |
1.82% |
1.91% |
|
Return on Risk-Weighted Assets (RoRWA) |
2.56% |
2.69% |
|
Capital |
Capital Adequacy Ratio (CAR) |
17.23% |
17.39% |
Source: Financial statements, investor presentations, A&M analysis
A&M Managing Director and Middle East Office Co-Head in the firm’s Strategic Performance Improvement Practice, Dr. Saeeda Jaffar, was the lead author of the report. It was co-authored by A&M Head of Financial Services Asad Ahmed, along with Neil Hayward, Managing Director and Middle East Co-Head, who specialises in turnaround and restructuring.
Dr. Jaffar commented: “Overall the profitability for the UAE banks has increased. This stems from increased operating income, reduced costs and increased balance sheet leveraging, offset by an increase in cost of risk. This very much reflects the funding cost pressures that continue to impact the banks amid increased competition for deposits and tighter liquidity, consequently leading to lower net interest margins in Q1 2019.”
“Whilst it is possible that liquidity could tighten in the coming months, we continue to maintain a balanced view towards the sector, with a focus on asset quality and improving profitability. The tightening could also help banks readjust business models now shaped by new financing-cost realities,” she concluded.
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