Major UAE banks improve financials after year of high returns

26 February 2024 2 min. read

The financial position of major banks in the UAE improved last year, with the outlook for 2024 also favourable, according to the annual Banking Pulse report from Alvarez & Marsal.

“Our analysis reveals a healthy showing among banks in 2023, with many institutions experiencing an increase in profitability and stronger return on investment metrics,” said Asad Ahmed, managing director at Alvarez & Marsal and head of the Financial Services practice in the Middle East.

For the UAE’s 10 largest banks studied by the management consulting firm, operating income increased by 29% or close to AED 30 billion, primarily led by higher net interest income.

Major UAE banks improve financials after year of high returns

Across the board, aggregate net income of the banks increased by 54% year-on-year to AED 76.9 billion. Profitability meanwhile jumped 29% as banks reported higher topline results, coupled with improved cost efficiencies, better asset quality, and lower impairments.

According to the report, aggregate deposits for the top 10 banks grew at 13% in 2023, whereas aggregate loans & advances increased by only 9%. Consequently, the Loan-to-Deposit-Ratio (LDR) slipped 3.1 percentage points year-on-year to 75%.

The outlook for 2024

Building on the good 2023 results, and strong fundamentals built over the years, the UAE banking sector faces an optimistic outlook for 2024, anchored in a backdrop of stable interest rates, decreasing bad loans, and a strong GDP forecast.

Major UAE banks improve financials after year of high returns

Ahmed: “Looking ahead, as the Central Bank of the UAE continues to align its benchmark rate with that of the US Federal Reserve, holding steady at 5.4%, we anticipate a shift in the second half of 2024 when rate reversals are expected to commence. This may present some short-term margin enhancement as deposit costs are likely to reduce relatively faster in response to rate cuts compared to the pace at which asset pricing may adjust.”

“In general, the sentiment is optimistic, though cautious given the geopolitical scenario. Given that UAE banks are mostly well capitalized, profitable, liquid, and well supported by regulators, we look forward to a stable 2024,” he continued.

The ten banks assessed by Alvarez & Marsal were First Abu Dhabi Bank, Emirates NBD, Abu Dhabi Commercial Bank, Dubai Islamic Bank, Mashreq Bank, Abu Dhabi Islamic Bank, Commercial Bank of Dubai, National Bank of Fujairah, National Bank of Ras Al Khaimah, and Sharjah Islamic Bank.