UAE-listed banks had a strong 2Q 2024 compared to its GCC peers, topping the region in terms of lending growth, return on equity, and net interest margins, while also logging the lowest cost-to-income ratios and the steepest drop in loan impairments in the region, according to a Kamco Invest report (pdf).

Lending accelerated 3.4% q-o-q to USD 554.1 bn in net loans, fueled by robust lending activity for the retail sector, the report said.

Emirati-listed banks also recorded a 16.9% return on equity (ROE), up from 16.7% in 1Q 2024, and posting a 160 bps y-o-y growth. Growth was driven by high net incomes and modest growth in shareholders’ equity.

Net interest margins came in at 3.47% in 2Q 2024, indicating “ample liquidity that allows UAE banks to capitalize on the tightening interest rate cycle with more modest asset growth,” Kamco said. Margins inched down from 3.49% in 1Q.

Cost-to-income ratios and loan impairments were down: UAE banks reported the lowest cost-to-income ratio in the GCC, dipping to 38.2% in 2Q from 38.4% in 1Q 2024. Loan impairments also saw the steepest drop among GCC banks, falling 27% q-o-q, to USD 380 mn. UAE banks contributed to the GCC banking sector’s total impairments sliding to USD 1.9 bn, the lowest recorded level in 33 quarters, according to Kamco.

REMEMBER- UAE banks’ gross credit hit AED 2.1 tn during the first two months of 2Q 2024, rising by 1.5% by the end of May. This growth was primarily driven by a 1.9% increase in Islamic banks’ lending, while conventional banks’ credit grew at a slower pace of 1.4%.

THE REGIONAL PICTURE-

GCC banks posted a record high of USD 14.8 bn in net income in 2Q 2024, rising 9.2% y-o-y and 2.6% q-o-q on the back of the sharp drop in loan impairments. GCC banks’ aggregate ROE climbed to 13.6% in 2Q 2024, matching pre-pandemic levels and reflecting a 70 bps y-o-y growth. Saudi and Qatari banks followed the UAE in ROE growth at 12.8%, while Kuwaiti banks’ ROE remained at 10.4%.

After dipping 4.5% in 1Q, the regional banking sector saw a rise in operating expenses to one of the highest on record, inching up 0.8% q-o-q to USD 12.55 bn. The uptick was driven by a 7.5% expense hike in Saudi Arabia’s banking sector to USD 4.2 bn.

GCC banks’ aggregate net interest margins held steady at 3.2% for the fifth consecutive month, signaling that it has peaked already as elevated interest rates over the past year are now fully priced in.

With surging funding costs and anticipated rate cuts, net interest margins are expected to “come under pressure” unless they were offset by “cheaper sources of funding and continued growth in lending,” according to Kamco.

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