The sector is expected to maintain a stable outlook in 2023 driven by growing demand for digital services and industry competitiveness
The UAE’s top five banks – First Abu Dhabi Bank (FAB), Emirates NBD, Dubai Islamic Bank (DIB), Abu Dhabi Commercial Bank (ADCB) and Mashreq Bank – posted a combined annual net profit of $11.5bn (Dhs42.1bn) in 2022, driven by higher interest rates and business volumes which boosted overall income.
S&P Global said that net interest income – the difference between interest revenues earned from lending activities and interest paid to depositors – at UAE’s banks has soared over the quarters as lenders are passing rate increases on to customers.
The UAE central bank hiked its base rate by 25 basis points (bps) to 5.5 per cent in March after the US Federal Reserve raised its interest rate by a quarter point, as the apex lender continues its most aggressive series of hikes since the 1980s.
FAB, the UAE’s largest lender by assets, reported a 7 per cent increase in full-year net profits to Dhs13.4bn, Emirates NBD’s annual profits jumped 40 per cent to Dhs13bn, DIB’s net profit soared by 26 per cent to Dhs5.6bn, ADCB saw its FY2022 net profits jump 23 per cent to Dhs6.4bn while Mashreq reported a 270 per cent surge in net profit to Dhs3.7bn.
Meanwhile, KPMG said the top 10 banks in the UAE reported a 31 per cent increase in annual net profit in 2022, as the sector is expected to maintain a stable outlook in 2023 driven by growing demand for digital financial services, rapid adoption of customer experience enhancing fintech solutions and industry competitiveness.
The accounting firm said, in its annual UAE Banking Perspectives report, that the cost-to-income ratio improved by an average of 1.8 per cent in 2022 and banks maintained sufficient capital levels well above the minimum regulatory requirements.
The total assets of the 10 banks in the Gulf state also increased by 10.6 per cent year-on-year driven by strong growth in deposits, loans and advances. “The UAE’s vibrant economy and its favorable business environment has attracted a significant amount of foreign investment, with banks benefiting from large pools of capital and high net worth customers the UAE is attracting,” said Abbas Basrai, partner and head of financial services at KPMG Lower Gulf.
Basrai identified the government’s commitment to regulatory reforms as one of the major factors that are contributing to the sector’s stability.
The UAE’s financial institutions have adequate capital overall and abundant liquidity while their asset quality has improved modestly from pandemic-era peaks. However, pressures on small banks’ profitability, alternative delivery channels and competition from digital banks are expected to increase shareholders’ appetite for consolidation to enhance the resilience of banks’ financial profiles.
UAE banks’ digital strategy
In other news, digital banking is swiftly changing the field of play in the UAE financial services sector where incumbents are facing increasing competition from neobanks and challenger banks which are billing on customer experience as their point of sale.
Introducing the 2023 edition of the UAE Banking perspectives.
This year’s publication discusses three emerging themes that will likely impact the banking sector in the upcoming decades: digital enablement, compliance price, and the human angle. https://t.co/2XUuoGKSYc pic.twitter.com/jP8Hyjn1FT
— KPMG Lower Gulf (@KPMG_LowerGulf) March 27, 2023
The banks are embarking on digital growth strategies focused on cloud adoption, which is expected to provide benefits including scalability, flexibility, faster time-to-value and cost-effectiveness as seek to main a competitive edge in a dynamic environment.
Customers’ evolving demands and expectations are driving banks to deliver technology-enabled services going beyond traditional banking. UAE banks, particularly the larger banking institutions, are exploring the metaverse as a new channel to provide financial services to their customers and connect with the larger banking ecosystem.
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