UAE's first half 2021 bank results point to economic recovery gaining traction

Dubai: Financial results of UAE banks for the first six months of 2021 point to sustained improvement in profitability supported by gains in cost efficiency, improving asset quality and gains in non-interest income streams.

The overall gains in the bank results for the first half of the current year compared to the same period last year confirms the improvement in the economic conditions supporting credit growth and credit quality with lower cost of funds.

Abu Dhabi Commercial Bank (ADCB) reported a net profit of Dh2.52 billion for the first half of 2021, up 76 per cent compared to the same period in 2020.

For the second quarter of 2021, the bank reported Dh1.4 billion net profit, up 14 per cent year on year and 25 per cent quarter on quarter.

“The growth in net profit is a result of the increase in a diversified revenue stream, disciplined cost control and a prudent approach to risk management,” said Khaldoon Al Mubarak, Chairman of ADCB.

Mashreq, a leading bank reported Dh85 million net profit for the first half (H1) of 2021. The bank’s operating income increased by 1.4 per cent over the previous year to Dh2.9 billion due to improvements in fees and commission.

Mashreq’s non-interest income to operating income ratio improved to 49.8 per cent compared to 47.1 per cent in the first half of 2020.

Operating profit at Dh1.6 billion is a 4.6 per cent increase compared to first half of 2020 as a result of increased operating income and reduced operating expense.

“Recording a net profit of Dh85 million during the first half of 2021, I believe we are fortunate to have been steered through the pandemic and its far-reaching impacts by a national leadership that has taken proactive measures to protect business interests, jobs and economic stability,” said AbdulAziz Al Ghurair, Chairman of Mashreq Bank.

Loan growth

Bankers confirm that the operating conditions have improved substantially paving the way for an uptick in loan growth.

While ADCB reported net loans of Dh237.8 billion, up 1 per cent sequentially and 0.5 per cent lower from year-end 2020, Mashreq’s loans and advances increased by 8 per cent to Dh77.3 billion.

National Bank of Fujairah (NBF) and Sharjah Islamic Bank that reported H1 net profits of Dh76.2 million and Dh289.5 million, respectively, maintained their loan growth confirming improvement in economic conditions.

“The current economic outlook depicts signs of a return to growth on the back of UAE government measures against the aftermath of COVID-19,” said Dr Raja Al Gurg, Deputy Chairperson of NBF.

Sustaining cost gains

The first set of bank results for the second quarter of 2021 has confirmed that the improvement in economic conditions has gained traction supporting banks’ profitability.

The first quarter results of most of the leading banks in the UAE had showed improving operating conditions characterised by better non-interest incomes, gains in cost savings and significant reduction in loan loss provisions supporting profitability.

ADCB reported a 180 basis points improvement in cost to income ratio to 34.8 per cent from a year earlier. While Mashreq reported a 2.7 per cent decline in operating expenses, NBF had its operating expenses reduced by 5 per cent year on year in the first half of 2021.

Asset quality

Although the overall provision levels continued to remain elevated, impairments are on a decline. ADCB reported impairment charges of Dh1.38 billion for the first six months of this year, down 46 per cent year on year. Non-performing loans (NPL) ratio was at 5.86 per cent. NBF made net impairment provisions of Dh425.7 million for the six month period ended June 30 2021, down 6.7 per cent compared to Dh456.3 million in the corresponding period of 2020.

Despite the overall improvement in asset quality matrices, banks continued to maintain conservative approach to provisions. Mashreq’s first half provision for loans and advances reached Dh5.3 billion Impairment allowance in the first half of 2021 stands at Dh1.5 billion compared to Dh978 million for 1H 2020, reflecting conservative provisioning policy.

An analysis of the results of top 10 banks in the UAE in the first quarter of 2021 by Alvarez & Marsal (A&M) showed the banks are on a recovery path along with the economy.

“The UAE banking sector has witnessed a sizeable improvement in profitability in the first quarter, and the trend is likely to continue for subsequent quarters,” said Asad Ahmed, A&M Managing Director.

“The Targeted Economic Support Scheme (TESS), which the Central Bank of UAE extended until June 2022, is expected to help cushion banks’ asset quality and ease their balance sheet stress through the second quarter of 2022.”