UAE’s banking sector books strong performance and is robust in 2023

28 March 2023 Consultancy-me.com 4 min. read

The UAE banking sector looks back at a strong 2022, with net profits up more than 25% on the year previous. Despite the risks of an international banking crisis on the horizon, UAE banks are expected to successfully weather the storm and maintain a stable outlook for 2023. This is according to a new industry report by KPMG.

In its annual ‘UAE Banking Perspectives’ report, experts from KPMG assessed the performance of the 10 largest local banks in the UAE, and provide insight into the future state of the banking scene.

Looking back, the results are promising. Across the board, total assets grew by 10% last year, and both return on assets as well as return on equity – two key financial metrics for performance – improved. Combined net profits jumped by over $3 billion to $15+ billion.

For the top 10 local banks

Meanwhile, the cost to income ratio during the year improved on average by 1.8% and banks maintained sufficient capital levels well above the minimum regulatory requirements.

Abbas Basrai, a partner at KPMG and Head of Financial Services for the Lower Gulf region, said: “The enhanced results are mainly due to an increase in net interest income, on account of higher interest benchmark rates and lower impairment charges compared to the year previous, resulting from improved asset quality and credit worthiness of borrowers.”

The positive financial performance was also driven by “a favourable business environment, significant foreign investment, and an influx of capital from high net worth customers.”

Basrai further lauded the role of the government in ensuring the UAE banking sector operates in a safe haven. “The government’s commitment to regulatory reforms sector’s ensures stability in the market. Measures taken by the Central Bank of the UAE to strengthen governance frameworks have led to increased transparency and accountability.”

Key metrics

KPMG’s report includes a detailed overview of performance across metrics. A round-up in 5 charts:

Loan deposit ratio
Loan Deposit Ratio (LDR) is calculated as loans and advances to customers (or financing assets in case of Islamic Banks) divided by customer deposits (including unrestricted investment accounts in case of Islamic Banks):

Loan deposit ratio

Capital adequacy ratio
Capital Adequacy Ratio (CAR) is calculated as total eligible capital divided by total risk weighted assets:

Capital adequacy ratio

Return on assets/return on equity
Return on Assets (ROA) is calculated as net profit attributable to the equity holders divided by average assets. Return on Equity (ROE) is calculated as net profit attributable to the equity holders divided by average equity:

Return on assets/return on equity

Market value/net asset
The market value of banks based on the total assets minus total liabilities (net assets):

Market value/net asset

Dividend payout ratio
Dividend payout ratio is calculated as dividend per share (recommended for the year by board) divided by basic earnings per share:

Dividend payout ratio

Commenting on the potential risk of a global banking crisis spreading to the UAE, Basrai said: “In spite of international volatility, UAE banks are relatively well placed to manage the contagion risk from this due to limited lending activity in the United States. Most of their assets in the US are likely to be high-credit quality instruments or with the US Federal Reserve Bank.”

“In light of their strong funding and liquidity profiles, and expected government support in case it is needed, the probability of UAE banks having to sell meaningful volumes of investment securities appears limited.”

“All in all, the UAE is well placed to tackle the current challenges due to its strong liquidity and capital position.”