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UAE Banking Sector Records Profitability Surge

According to Alvarez and Marsal's report, the UAE banking sector's profitability is on the rise, owing to growing non-interest income.

Alvarez & Marsal’s analysis reveals a positive trajectory in the UAE banking sector’s profitability, attributing it to increased non-interest income and reduced impairment charges. 

Top lenders showcased improved performance due to a 15.4% quarter-on-quarter rise in total operating income and a decrease in impairment charges by 11.7%.

Fitch Ratings Forecasts Historic High-Performance Metrics:

Fitch Ratings predicts historically high-performance metrics for UAE banks in 2023, with a combined net profit of Dh38 billion and an impressive annualized return on average equity of 20.3%. 

The sector’s net interest margin (NIM) increased substantially to 3.3%, reflecting the impact of higher interest rates and favorable liquidity conditions.

Insights on the Banking Sector’s Health and Growth Projections:

Asad Ahmed, A&M’s Managing Director, emphasized the robust performance in Q3, fueled by higher interest rates and reduced impairment charges. 

The sector’s strength stems from healthy liquidity, supported by high oil prices and moderate credit demand amid rising interest rates.

The report highlights a steady increase in net interest income (NII) and loans and advances (L&A), primarily driven by corporate/wholesale loans. 

Deposit growth outpacing credit demand led to a decreased loan-to-deposit ratio, registering at 75.2%. NII and non-interest income contributed significantly to total operating income growth.

NIM Expansion and Improved Risk Management:

The net interest margin (NIM) expanded by 8bps, buoyed by an increased yield on credit compared to the cost of funds. 

Most banks reported an increase in NIMs for the quarter. Notably, nine out of 10 banks showcased an improvement in cost of risk (CoR), settling at 0.6% for Q3’23 due to reduced impairment charges.

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