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Growth in net interest income will drive profitability to pre-pandemic levels at the largest UAE banks in the next 12-18 months, according to a report by Moody's Investors Service.
The growth in net interest income will be underpinned by rising interest rates expectations and strong business momentum supporting non-interest income, even as provisioning efforts ease, said the report published on Monday.
"The four largest banks' profitability rebounded to near pre-pandemic levels in 2021, largely reflecting robust non-interest income and softening loan loss provisions," said Nitish Bhojnagarwala, a VP-Senior Credit Officer at Moody's and the author of the report.
"We expect a full return to pre-pandemic levels of profitability in the next 12-18 months."
The four largest banks,First Abu Dhabi Bank, Emirates NBD, Abu Dhabi Commercial Bank and Dubai Islamic Bank reported a combined net profit of $8 billion for full-year 2021, up 31 percent from the previous year.
The recovery was a result of improving consumer confidence as macroeconomic conditions in the UAE recovered, particularly given loosening pandemic restrictions, a strong vaccination roll-out and recovering oil prices.
Moody's expects continued the pick-up in bottom-line profitability to support the UAE banks' already healthy capital buffers and outweigh the pressure coming from increased lending activity in a context of economic recovery.
Although net profitability has broadly bounced back to pre-pandemic levels (in dollar terms), the return on assets may not recover for some banks until 2023, the report said.
(Writing by Brinda Darasha; editing by Seban Scaria)
