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Alvarez & Marsal releases UAE banking pulse for Q1 2021

The report highlights that the top 10 UAE banks started the year on a mixed note, as the aggregate net income increased by 85% QoQ, due to a decline in operating expenses and impairment charges

Profitability metrics of the top ten UAE banks increased, as impairment and operating expenses decline Aggregate net income increased by 85% quarter-on-quarter (QoQ) Loan & advances declined whereas deposits increased in Q1’21

 Leading global professional services firm Alvarez & Marsal (A&M) has released its latest UAE Banking Pulse for Q1 2021. The report highlights that the top 10 UAE banks started the year on a mixed note, as the aggregate net income increased by 85% QoQ, due to a decline in operating expenses and impairment charges which supported the overall profitability. However, loan & advances continued to contract with a 0.7% decrease in fiscal first-quarter whilst deposits increased to 1.2%, after declining in Q4’2020.

The UAE’s strong fiscal and external positions will continue to support the fundamentals of the banking sector. However, persistent pressure on the real estate sector continues to pose risks for UAE banks.

Authored by Asad Ahmed, A&M Managing Director and Head of Middle East Financial Services, Alvarez & Marsal’s UAE Banking Pulse, examines the data of the 10 largest listed banks in the UAE, comparing the Q1’21 results (Q1’21) against Q4’20 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).

The prevailing trends identified for Q1 2021 are as follows:

1. Loan & advances (L&A) declined by 0.7% QoQ whereas deposits increased by 1.2% QoQ in Q1’21. Aggregate loans to deposit ratio (LDR) decreased to 84.5% in Q1’21 compared to 86.2% in Q4’20.

2. Operating income increased by 1.3% QoQ, largely on the back of reduced net interest income (NII). This was partially offset by a 5% QoQ decline in net interest income due to lower interest rates. Emirates NBD reported the highest increase in its total operating income, of more than 25% QoQ, as fee income grew by 42% owing to higher business volumes.

3. Aggregate net interest margin (NIM) continued to remain under pressure as declined to a multi-year low, decreasing by 10 bps to 2% in Q1’21. This was due to a decline in yield on credit, -19 bps QoQ, while the cost of funds remained largely flat at 1.2%. NIM deteriorated for most of the banks.

4. Cost-to-income (C/I) ratio decreased by 3.6 percentage points to 33.1%, after increasing for two consecutive quarters. Among the top 10 banks, Mashreq Bank reported the highest decrease in C/I ratio by 46.1% in Q1’2021. Five of the top 10 banks reported decreased C/I ratio.

5. Eight of the top 10 banks reported a decrease in the cost of risk (CoR), as an improved macroeconomic environment led to lower provisioning. Total loan loss provisions decreased 36.1%QoQ in Q1’21. The overall slump was driven by lower impairments from NBF (-71.7% QoQ), ADIB (-62.9% QoQ), DIB (-60.5% QoQ) and MSQ (-58.5% QoQ). Aggregate CoR decreased by 72 bps QoQ, as total provisioning decreased ~36.1% to AED 5.3bn. To achieve 100% coverage ratio, the top ten UAE banks would have to book an additional AED 18.2bn in provisions, coming to 20% more than booked FY’20 provisioning. Among the individual banks, ADCB requires 40% more provisioning, than FY’20 levels, to achieve 100% coverage ratio.

6. Cumulative net income increased by 84.8% versus the previous quarter primarily due to a significant decline in impairment allowances along with operating expenses. Aggregate return on equity (RoE) improved from 5W% in Q4’20 to 9.7% in Q1’21, as net income increased 85% QoQ.


The table below sets out the key metrics: 



Q4 2020

Q1 2021


Loans and Advances Growth (QoQ)



Deposits Growth (QoQ)




Loan-to-Deposit Ratio (LDR)



Income & Operating Efficiency

Operating Income Growth (QoQ)



Operating Income / Assets



Non-Interest Income / Operating Income



Yield on Credit (YoC)



Cost of Funds (CoF)



Net Interest Margin (NIM)



Cost-to-Income Ratio (C/I)




Coverage Ratio



Cost of Risk (CoR)




Return on Equity (RoE)



Return on Assets (RoA)



Return on Risk-Weighted Assets (RoRWA)




Capital Adequacy Ratio (CAR)



Source: Financial statements, investor presentations, A&M analysis

Mr. Ahmed commented: “The UAE banking sector has witnessed a sizeable improvement in profitability in the first quarter, and the trend is likely to continue for subsequent quarters. The Targeted Economic Support Scheme (TESS), which the Central Bank of UAE extended until June 2022, is expected to help cushion banks’ asset quality and ease their balance sheet stress through the second quarter of 2022.

As the economy recuperates from pandemic headwinds, banks’ income streams are expected to remain under pressure, while interest rates are likely to remain historically low. Operating costs and credit loss charges are expected to improve in 2021 compared to 2020 as banks focus on cost efficiency, adopt innovation and gain clarity on the economic recovery.”