Banking & Finance

UAE bank lending rises but profits hit by impairment charges

November 25, 2024, 8:08 PM

UAE bank ADCB signed up 210,000 new customers in Q3, with 84% joining via digital channels — ADCB signed up 210,000 new customers in Q3, with 84% joining via digital channels

Net income down 5.5% in Q3
Big increase in impairment charges
Retail lending drives activity

The aggregate net income of UAE banks dropped 5.5 percent in the third quarter of this year, as a jump in impairment charges dented profitability.

Among the top 10 lenders in the UAE, aggregate income fell to AED20.3 billion ($5.5 billion) in Q3 2024, according to a report by professional services firm Alvarez & Marsal.

Total interest income among the banks increased by 3.4 percent quarter on quarter.

However, a 125 percent growth in impairment charges – in which banks recognise that their assets have lost value and are unlikely to recover it – harmed profitability.

Aggregate loans and advances in Q3 2024 were 3.5 percent up on the previous quarter. Retail lending was the driving force, with an increase of 4.9 percent.

ADCB and Emirates NBD drove most of the retail loan activity, with rises of 7.9 percent and 4.9 percent respectively on the same quarter last year.

First Abu Dhabi Bank recorded the most overall loans and advances for the quarter, with roughly AED550 billion issued – the majority of which was to corporate or wholesale clients. It was closely followed by Emirates NBD, which lent roughly AED525 billion.

Alvarez & Marsal said Emirates NBD was witnessing strong momentum in its Saudi operations, with loan growth of 49 percent in the quarter.

ADCB, meanwhile, reported 210,000 new customers in Q3 – 84 percent of whom signed up via digital channels.

Asad Ahmed, managing director of financial services at Alvarez & Marsal, said: “The UAE banks’ performance reflects a cautious approach amid changing monetary policies and economic conditions. While lending growth continues, the sector faces challenges with higher impairment charges and cost efficiencies.

"The focus on digitalisation and strategic cost management will be crucial for sustaining profitability and capital strength in the coming quarters.”

The Central Bank of the UAE cut its benchmark interest rate by 50 basis points to 4.9 percent in Q3.

Ahmed said: “Despite some headwinds, cues from management guidance indicate optimism on lending growth momentum to continue while impairments take a cautious outlook.”