190127 emirates nbd
Emirates NBD Head Office at Baniyas street in Dubai. The third quarter 2020 bank results point to sharp decline in profits of UAE banks largely resulting from rise in provisions against bad loans. Image Credit: Ahmed Ramzan/ Gulf News Archives

Dubai: The third quarter 2020 bank results point to sharp decline in profits of UAE banks largely resulting from rise in provisions against bad loans.

The pattern has been broadly same for both large and small banks indicating the impact of pandemic on both asset quality and profitability.

Emirates NBD, the largest bank in Dubai reported a 55 per cent decline in net profits due to higher impairment charges and the gain on disposal of a stake in Network International not repeated in 2020.

Even without the gain from the share sale in Network International, the bank’s net profit contracted by 30 per cent year on year in the 9-month period.

The Group continued to increase impairment allowances for Stage 1 and 2 coverage in light of the challenging economic climate.

ENBD results
ENBD results Image Credit: ENBD

“Despite the challenging conditions that individuals and businesses have faced over the last six months, Emirates NBD has remained profitable and maintained a strong balance sheet,” said Shayne Nelson, Group Chief Executive Officer of Emirates NBD.

Lower loan growth and lower yields resulted in contraction of interest incomes. Excluding the DenizBank, its Turkish subsidiary, net interest income declined 11 per cent year on year due to lower margins.

Net interest income declined throughout 2020 due to lower interest rates but non-funded income showed improvement in the third quarter of 2020.

Broad trend

Results of Dubai Islamic Bank (DID), RAKBank and Sharjah Islamic Bank also broadly showed the trend of rise in loan impairments. DIB’s 9-month earnings were squeezed by a 151 per cent year on year surge in impairments. The bank reported Dh3.12 billion net profit for the 9-month period down 22 per cent year on year.

DIB results
DIB results Image Credit: DIB

The bank said despite the challenges in the global economy, it continues to demonstrate franchise strength and remain profitable during the on-going global crisis.

RAKBank’s 9-month net profits were down 48 per cent to D438.6 million largely driven by lower third quarter earnings due to reduced income resulting from a subdued loan demand and higher IFRS 9 provisions that are set aside as precautionary measures to combat the economic impact of COVID-19. Provisions were higher by more than 30 per cent year on year.

“The third quarter has remained challenging for RAKBank, and we have to expect this trend to continue for next few quarters at least as it takes time for the gradual recovery to flow through the economy and begin to translate into improved performance at RAKBank,” said Peter England, CEO of RAKBank.

UAE lenders witnessed a considerable contraction in net interest margins (NIM) in the second quarter due to factors such as the shift to the marginal cost of funds-based lending rate and all-time low interest rates.


Rising loan impairments has been the common factor for all banks. COVID-19 related job losses, mainly in the private sector and the rising loan restructurings by both individuals and business are expected to increase provisions and apply further pressure on profits.“With the COVID-related loan reliefs ending and or tapering, there has been an increase in defaults or requests for further relief in terms of deferrals, especially in the retail book. This will likely to have an impact on the overall NPL growth,” said a banker.

“While there has been a peripheral increase in profitability [in the second quarter, on a quarter on quarter basis], the outlook for the domestic banking sector still remains subdued as a result of the weakened after-effects of COVID-19, in addition to low oil prices, and the postponement of Expo 2020. Moreover, the low interest environment, along with a possible increase in impairments, is expected to further weigh on profitability,” said Asad Ahmed, A&M Managing Director and Head of Middle East Financial Services.

Slowing loan growth

Data from the latest Quarterly Review of the Central Bank of UAE (CBUAE) showed total assets of UAE banks increased in the second quarter by 2 per cent quarter on quarter while gross credit increased by 1.3 per cent, and domestic credit increased by 1.9 per cent. While the overall loan growth remained weak, the government borrowings drove most of the positive momentum in credit growth. Third quarter results show further slowdwon in loan growth.

Net interest margins (NIM) of top UAE banks fell by about 24 bps to 2.29 per cent in the second quarter of 2020, on account of the sharp decline in interest rates. With the interest rates remaining low, banks are expected report further squeeze on margins in the third and the fourth quarter.

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A recent KPMG report showed that in the wake of Covid-19, the first half 2020 profits of the top 10 listed UAE banks declined on an average by 38.9 per cent. This was mainly attributable to higher-than-expected credit losses on loans and advances, which increased by 125.8 per cent on an average, compared to the previous year. The quality of credit exposures has also deteriorated, resulting in an increase in the non-performing loan ratio from 3.8 per cent on December 31, 2019, to 4.1 per cent on June 30, 2020, for the UAE’s top banks.

“KPMG’s analysis shows that the UAE banking sector has remained resilient, despite a challenging operating environment and a drop in net profits from the top 10 listed banks. Stakeholders’ focus is shifting towards stability, solvency, and liquidity. It remains to be seen whether this will trigger another wave of mergers and acquisitions in the region’s banking sector,” Abbas Basrai, Partner and Head of Financial Services at KPMG Lower Gulf.