Top 10 UAE banks’ total interest income declined for the third consecutive quarter reporting, 7.7 per cent quarter on quarter in Q3 of 2020. Lower interest rate environment continued to pressure banks’ asset yield. After a relatively stronger second quarter, net income declined by 3 per cent quarter on quarter due to lower interest and other operating income, which continued to impact profitability. After a rebound in performance in Q2 2020, profitability of the top 10 UAE banks in Q3 2020 showed signs of vulnerability with declining interest income and increased provisioning weighing on the net profit. The economic conditions in the UAE and the region generally to remain challenging in the near term, which would likely limit credit and earnings growth and also result in higher non-performing loans.
The challenging economic environment impacted credit uptake as loans and advances remained flat in Q3 2020 compared to Q2 2020. On the other hand, deposits increased 4.2 per cent QoQ, largely on the back of 16 per cent increase in FAB’s deposits. Consequently, loans to deposit ratio (LDR) decreased to 84.1 per cent compared to 87.7 per cent in Q2 2020. Top 10 banks have provided borrowers access to Dh51.1billion at the end of the third quarter under the UAE Central Bank’s Targeted Economic Support Scheme. Operating income continued to decline for the third consecutive quarter. Persistent decline in net interest income (-6.7 per cent QoQ) weighed on the operating income, which decreased 3.4 per cent QoQ. Low interest rate environment continued to pressure asset yields among the banks and impacted net interest income. On the other hand, there was an increase in net fee income (+18% QoQ), which limited the decline in total operating income.