The US Fed Chairman Jerome Powell has ratcheted up the intensity on upcoming interest rate hikes, with markets already pricing in five raises this year. The probability of five hikes this year was at zero just a few days ago.
When interest rates rise - and they will in 2022 - banks' profit margins could expand substantially due to the wider spread between the money they earn on loans and the interest they pay out to depositors. GCC banks' net interest margins and earnings will benefit from a rise in lending - and in lending rates.
For UAE based banks, the post-Expo business environment will rub off positively on their key margins. The digital banking divisions will be early gainers due to wider use of cashless payments. The UAE authorities' initiatives to improve the liquidity and depth of local stock markets will likely to boost activity, enhancing banks' trading revenues in the coming quarters.
FAB, the UAE's largest publicly traded bank, is set to seize such opportunities. The bank, which has a market cap of Dh225 billion, reached a historic milestone when its total assets surpassed Dh1 trillion as of end last year. The full-year revenue was Dh21.7 billion, up 17 per cent year-on-year thanks to considerable growth in non-interest income. Net profit totalled Dh12.5 billion, a gain of 19 per cent and attributable to a solid economic turnaround and momentum across core sectors.
Heavy on the loans
Customer deposits totalled Dh614 billion in 2021, a solid 14 per cent year-on-year and 1 per cent sequentially. Loans, advances, and Islamic financing are at Dh410 billion, up 6 per cent year-on-year and 2 per cent sequentially. The 'Liquidity Coverage Ratio' is 134 per cent, indicating robust liquidity and laying the foundations for expansion.
Reaping the IPO windfall
The bank's investment banking division had an extraordinary year, originating and structuring landmark deals and spearheading new offerings and IPO listings on Abu Dhabi Stock Exchange. This continued business lift, in addition to solid trading results, resulted in a 69 per cent increase in investment banking revenues. This may continue as the UAE has a number of IPOs planned for 2022.
The local economy continues to register a robust rebound against the backdrop of increased business and consumer confidence, apart from government reforms to foster diversification. Moreover, oil prices are holding above $70 a barrel, which is expected to be a significant catalyst for a further growth pick up. All of this should bode well for the UAE's leading bank - FAB.