The UAE banking sector’s performance improved in the second quarter of 2021 with the top ten lenders showing a healthy rebound in profitability and balance sheet metrics.

Return on Equity (RoE) was back at Q4 2019-levels and loans and advances (L&A) showed improvement, according to a report from Alvarez & Marsal (A&M).

Aggregate RoE improved from 9.8 percent in Q1 2021 to 10.9 percent in Q2021, for the first time in the last five quarters, as net income increased 11.5 percent QoQ to 9 billion dirhams ($2.45 billion).

As economic conditions continued to improve, an increase of 2.8 percent QoQ in operating income coupled with a 9.3 percent drop in impairment charges compared the previous quarter drove the growth in profitability.

The L&A increased by 1.9 percent QoQ, after declining for three consecutive quarters. “Dubai’s mortgage market has indicated robust signs of improvement, with the number of mortgage issuances almost doubling between December 2020 and June 2021,” the report said. 

The asset quality of the UAE banks also stabilized overall after deteriorating in 2020. Three out of UAE’s top ten largest banks, including Emirates NBD, Mashreq and RAK Bank, have a coverage ratio of over 100 percent.

“The banks have shown that they are better positioned than before in managing stress in their balance sheets in view of higher capital buffers, improvement in recoveries and improving profitability. The lower provisioning by banks underlines an improved credit outlook for the sector,” the report said.

The report analysed First Abu Dhabi Bank (FAB), Emirates NBD (ENBD), Abu Dhabi Commercial Bank (ADCB), Dubai Islamic Bank (DIB), Mashreq Bank (Mashreq), Abu Dhabi Islamic Bank (ADIB), Commercial Bank of Dubai (CBD), National Bank of Fujairah (NBF), National Bank of Ras Al-Khaimah (RAK) and Sharjah Islamic Bank (SIB).

(Writing by Brinda Darasha; editing by Daniel Luiz)

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© ZAWYA 2021