The UAE’s top four lenders First Abu Dhabi Bank(FAB), Emirates NBD as well as Abu Dhabi Commercial Bank (ADCB) and Dubai Islamic Bank (DIB) posted a 21 per cent increase combined net profit of AED 8 billion ($2.2 billion) in Q2 2018.
Moody’s expects profitability for the UAE’s largest lenders to remain stable into 2019, driven by higher net interest income and lower provisions.
Nitish Bhojnagarwala, Moodys’ Vice President Senior Credit Officer, said, “We expect core profitability for the large UAE banks to remain broadly stable over the next 12 to 18 months, as interest earnings hold steady at current levels, and as the decline in provisioning charges reverses due to softening business confidence.”
In Q2 2018, the banks’ profitability improvements were mainly driven by a 10 per cent increase in net interest income compared with Q2 2017, as banks repriced loans following a rise in interest rates.
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Additionally, the banks also benefited from a 27 per cent reduction in loan loss provisions, as they were allowed to take expected future credit losses from their capital, a one-off measure to facilitate IFRS 9 adoption in Q1 2018.
Operating costs rose three per cent quarter on quarter and eight per cent year on year, reflecting investments in technology to improve operational efficiency as well as to drive adoption of fintech.
