A&M: UAE banks rebound on strength of core interest income

Total interest income grew by 19.5% QoQ in Q2
A&M: UAE banks rebound on strength of core interest income
Asad Ahmed

Global professional services firm Alvarez & Marsal (A&M) has released its latest UAE Banking Pulse for Q2 2022. The Pulse suggests that the top ten UAE banks have reported a significant rebound in quarterly profits for Q2’22, as the lenders witnessed an increase in profitability driven by core interest income. The total interest income of the banks grew drastically by 19.5 percent QoQ (quarter-on-quarter) in Q2’22, boosted by higher interest income. Major banks reported an increase in the aggregate net income by 24.4 percent in the current fiscal to 12.6 billion dirhams. 

According to the report, the push and pull between loans and deposits reveal an improvement in customers’ personal economic standing. The rise in interest income has been spurred by a sharp rise in both advances and deposits. Total advances grew by 1.8 percent while deposits grew faster at 4.5 percent.

Aggregate non-interest income (NII) surged by 15.1 percent QoQ and the overall net interest margin (NIM) jumped by 26.1 bps QoQ due to higher benchmark rates. Overall asset quality improved as non-performing loans (NPL)/ loans and advances (L&A) fell by 0.4 percent to 5.7 percent during the quarter.

A&M’s UAE Banking Pulse examines data of the 10 largest listed banks in the UAE, comparing the Q2’22 results against Q1’22 results. Using independently sourced published market data and 16 different metrics, the report assesses banks’ key performance areas, including size, liquidity, income, operating efficiency, risk, profitability, and capital.

The country’s 10 largest listed banks analyzed in A&M’s UAE Banking Pulse are 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).

Prevailing trends


  1. Customer deposit growth outpaced L&A in Q2’22. The top ten UAE banks’ aggregate L&A increased by 1.8 percent QoQ in Q2’22, while the deposits grew at 4.5 percent QoQ. Consequently, the aggregate loan-to-deposit ratio (LDR) decreased to 82.4 percent QoQ in Q2’22 compared to 84.5 percent QoQ in Q1’22.
  2. Operating income witnessed an uptick primarily due to higher interest income (19.5 percent QoQ) supported by NII such as foreign exchange income and investment gains. The total operating income increased by 13.6 percent QoQ as compared to -6.4 percent in Q1’22. The growth was primarily driven by NII which increased substantially by 15.1 percent QoQ and foreign exchange and investment-related income of +24.1 percent QoQ.
  3. The UAE banking sector’s NIM noted an improvement as the benchmark interest rate increased. Although NIM increased to 2.3 percent it is still below the pre-pandemic levels of 2.6 percent. The NIM improved by 26.1bps QoQ as aggregate NII of +15.1 percent QoQ grew at a faster pace as compared to net interest-bearing assets of +3.9 percent QoQ. The yield on credit jumped 84bps QoQ to 5.9 percent for Q2’22 largely due to a substantial increase in interest Income at +19.5 percent QoQ due to the interest rate hike. The cost of funds deteriorated by 26.2bps QoQ to 1.3 percent in Q2’22. 
  4. Operational efficiency improved in Q2’22 despite an increase in operating expenses. The cost-to-income (C/I) ratio improved by 2.9bps QoQ to reach 31.5 percent. The drop in the C/I ratio was due to operating income of +13.6 percent QoQ growing at a faster pace than operating expense of +4.1 percent QoQ. Eight out of ten UAE banks reported an improved C/I ratio in Q2’22. 
  5. Cost of risk (CoR) improved as aggregate impairment charges continued to decline for the sixth consecutive quarter. The aggregate CoR fell by ~9.7bps QoQ to 0.72 percent in Q2’22 and the decline is attributed mainly to the decrease in total provisioning to AED 3.1bn at -9.7 percent QoQ in Q2’22 from AED 3.5bn in Q1’22. 
  6. The return ratios witnessed an uptick in Q2’22 as profitability improved across the board. The aggregate net income increased by 24.4 percent QoQ, as a result, the return ratios such as return on equity (ROE) and return on assets (ROA) improved by 1.9 percent points QoQ and 0.3 percent points QoQ respectively. 

Asad Ahmed, A&M Managing Director and Head of Middle East Financial Services commented: “The regional banking sector, including that of the UAE, is expected to report continued strong profitability on the back of increasing interest rates, improving credit quality, and robust economic growth. While clearly inflation is now a global concern, we foresee a lesser impact of this in the region, against the backdrop of firm oil prices, increased consumer confidence, and strong economic activity. Extensive public participation in the recent wave of state-linked IPOs has also been a key contributor to the positive sentiment during this quarter.”