Top 10 UAE commercial banks see profits drop by 38.9%

Decrease attributed to higher than expected credit losses on loans, which increased by 125.8% year-on-year

Image used for illustrative purpose. Skyscrapers along Sheikh Zayed Road at dusk.

Image used for illustrative purpose. Skyscrapers along Sheikh Zayed Road at dusk.

Getty Images

The UAE’s top 10 listed commercial banks saw profits decrease by an average of 38.9 percent in the first half of 2020, due to the double challenge of low interest rates and low oil prices, according to KPMG.

Abbas Basrai, Partner and Head of Financial Services at KPMG Lower Gulf, said: “Stakeholders’ focus is shifting towards stability, solvency, and liquidity. It remains to be seen whether this will trigger another wave of mergers and acquisitions in the region’s banking sector.”

This followed a report earlier this week from ratings agency Moody’s, which said a new wave of bank mergers and acquisitions was likely due to COVID-19 and low oil prices.

According to KPMG’s report, the UAE banking sector remained resilient despite the reduction in profits.

The drop in profits was attributable to higher than expected credit losses, which increase 125.8 percent on average year on year, the global accounting and consultancy firm said.

“The quality of credit exposures has also deteriorated, resulting in an increase in the non-performing loan ratio from 3.8 percent on 31 December, 2019, to 4.1 percent on 30 June 2020, for the UAE’s top banks,” KPMG said in a press release.

“The effect of COVID-19 and the consequent lockdowns by governments has impacted several sectors globally and the banking industry is no exception,” it said. 

“GCC governments and central banks also announced various economic support measures including payment holidays for borrowers and targeted liquidity support for banks.

“To maintain stability in the sector during unprecedented times, some regulators have also provided specific relief from capital norms and certain accounting guidelines.”

Specific measures taken in the UAE to mitigate the impact of the pandemic include the Central Bank of the UAE (CBUAE) announcing a broad range of support, including a $70 billion stimulus package as banks face unprecedented demand for greater liquidity.

(Writing by Imogen Lillywhite; editing by Daniel Luiz)


Disclaimer: This article is provided for informational purposes only. The content does not provide tax, legal or investment advice or opinion regarding the suitability, value or profitability of any particular security, portfolio or investment strategy. Read our full disclaimer policy here.

© ZAWYA 2020

More From Financial Services