Emirates NBD Head Office at Baniyas street in Dubai
A substantial decline in impairments and loan loss provisions indicate improvements in credit conditions supported by robust revival in the economy. Image Credit: Ahmed Ramzan/Gulf News

Dubai: All leading banks in the UAE have reported strong growth in both revenues and net profits in the first half of 2021, clearly pointing to a sustained revival in the economic conditions in the country.

Most banks have also reported loan growth, deposit growth and substantial gains in non-interest income, which to a great extent mitigated slower growth in interest income due to the low interest rate environment. A substantial decline in impairments and loan loss provisions indicate improvements in credit conditions supported by robust revival in the economy.

The latest Credit Sentiment Survey of the Central Bank of UAE also shows, the overall credit appetite for both corporates and personal loans improved in the second quarter and is poised for further gains in the second half of the year.

Trends in large banks

Country’s largest banks by assets such as the First Abu Dhabi Bank (FAB), Emirates NBD (ENBD) and Abu Dhabi Commercial Bank (ADCB) reported double digit growth in net profits supported by decline in loan loss provisions, shrinking operating costs and improved non-interest income.

FAB, the UAE’s largest bank reported a net profit of Dh5.4 billion for the first half of 2021, up 11 per cent year on year. Improved profits were driven by revenue growth from a solid performance across core businesses despite headwinds from rate cuts.

Emirates NBD’s net profit jumped 17 per cent on stable margins, effective cost management and a significant reduction in the cost of risk reflecting improved business sentiment.

The bank’s strong operating performance on higher transaction volumes reflects improving economic conditions coupled with firm cost management.

“Emirates NBD’s profits jumped 17 per cent as the impact of lower interest rates was more than offset by firm cost management and a significant improvement in the cost of risk to pre-pandemic levels,” said Shayne Nelson, Group CEO.

ADCB’s net profits for H1 2021 zoomed 76 per cent year on year to Dh2.52 billion.

“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.

Decline in impairments
Irrespective of the size, most UAE bank reported improved performance in the first half of 2021, largely driven by lower loan impairment charges.
Although the overall provision levels continued to remain elevated, impairments for sure are on decline. For FAB, impairment charges at Dh1.1 billion were down 36 per cent year-on-year. While ENBD’s impairment allowances dropped by 38 per cent in the first half of 2021, Dubai Islamic Bank's and ADCB’s impairments were down 29 per cent and 46 per cent, year on year, respectively.

Trends in medium and small banks

Medium sized banks and smaller banks too reflected the wider profitability trend largely driven by lower provisions and prudent cost management.

Despite the overall improvement in asset quality matrices, banks continued to maintain conservative approach to provisions.

Commercial Bank of Dubai (CBD) has delivered a net profit of Dh676 million for the first half of 2021, up 27.5 per cent against the first half of 2020. Improved operating performance coupled with lower expected credit losses have supported the growth in net profit.

Abu Dhabi Islamic Bank (ADIB) posted a net profit of 1.1 billion for the first-half of 2021, up 89 per cent year-on-year from Dh588 million in H1-2020. Mashreq, National Bank of Fujairah, Sharjah Islamic Bank and RAKBank reported improved revenues and profits pointing to improving business conditions.

Loan growth

Bankers confirm that the operating conditions have improved substantially paving the way for an uptick in loan growth. While the loan growth across the sector during H1 has been positive and averaged in lower single digits.

FAB’s loans and advances grew 3 per cent to Dh399 billion. ENBD’s H1 loans were down 1 per cent due to repayments of corporate loans including loans receiving support and the FX translation impact.

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. ADIB’s gross customer financing grew by 3 per cent year-on-year growth, driven by improvements of 3 per cent in wholesale banking customer financing and 2 per cent in retail customer financing compared to H1 2020.

Cost gains

All leading banks in the country with the exception of a few reported substantial cost gains that positively impacted their profits. Consolidation, rationalization of branch operations, and significant technology adoption have helped banks to make sustainable cost savings.

Emirates NBD’s expenses for the first-half of 2021 of Dh3.76 b billion improved 2 per cent over the preceding half year. Expenses were 6 per cent lower year on year due to lower staff and operating costs.

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.

DIB’s operating expenses declined 15 per cent year-on-year. The reduction in operating expenses is attributed to the continued integration synergies achieved as well as a disciplined approach to cost management. The lower expenses have led to an improvement in cost to income ratio by nearly 250 bps year to date, which now stands at 26.9 per cent vs 29.4 per cent for 2020.

ADIB’s financial results were a supported by an 8 per cent decline in operating expenses with cost to income ratio improving 5 per cent due to the successful implementation of technology-led initiatives that helped reduce the cost of sales and customer acquisition while also streamlining internal processes.