Dubai: While the market expectations on the fourth quarter vary, results for the first nine months of year reinforce the assumption the UAE banks are expected to deliver stellar results for the full year 2014.

Third quarter numbers of Dubai based banks underline the strong recovery in the economy and the overall optimism in their assets and profits growth. Emirates NBD, the largest bank in the UAE by total income and branch network reported a 51 per cent increase in the net profits to Dh3.9 billion for the first 9 months of 2014.

Dubai Islamic Bank (DIB), the largest Islamic Bank in the UAE by assets reported Dh2 billion net profits for the first nine months of this year. For the third quarter the bank reported Dh723 million net profits, up 57 per cent compared to Dh461 million in the same quarter last year.

In Abu Dhabi, Union National Bank (UNB) surprised positively with its net income growth jumping to 22 per cent after two muted quarters with single digit growth. The third quarter profits were largely driven by increase in volumes across the various business segments.

Abu Dhabi Commercial Bank’s (ADCB) and First Gulf Bank’s (FGB) double-digit net income growth trends remained solid in the third quarter. Key drivers were very similar to the previous quarters such as acceleration in loan growth, resilient net interest margins (NIMs) stellar non-funded income generation and lower cost of risk.

While the continuing decline in oil prices could be a medium term worry for the banking sector, analysts say banks that are heavily dependent on government deposits for liquidity will face higher cost of funding. If a prolonged slump in oil prices is to impact economic activities in the country, it could have adverse impact on profitability and asset quality which may be reflected on balance sheets after a lag of at least two quarters from now.

Increase in profitability of the banking sector this year is expected to boost internal capital generation, maintaining banks’ strong Tier 1 capital levels at around 16 per cent. In addition to the shock absorption capacity, the robust capital metrics is expected to maintain its strong funding and liquidity profiles.

“The cash-rich federal government and stronger Abu Dhabi-based GRIs will continue to remain a key and stable source of deposits, limiting the system’s dependence on confidence-sensitive market funding,” Nitish Bhojnagarwala, Assistant Vice President of Moody’s.

The strength of the UAE banks’ liquidity is reflected in the banking system’s liquid assets-to-total assets ratio of around 30 per cent (stable at these levels since 2012) as well as a loans-to-deposit ratio of 91 per cent as of December 2013 (down from 108 per cent in December 2008).

Analysts say the short to medium term outlook is strong for the UAE banking sector. “The UAE banks are amply capitalised, liquid, provisioned and with stable profits, reflecting prudent regulation by the central bank in recent years. The dollar peg is fairly secure. Unlike in 2009, there does not appear to have been any withdrawal of deposits from foreign institutions,” said Garbis Iradian, Deputy Director of Institute of International Finance.