Lower provisions and higher interest rates to fuel profit growth for UAE’s big banks in 2023

Moody’s Investors Service has reported that the four largest banks in the United Arab Emirates (UAE) are set to maintain their strong growth momentum in 2023, as profitability is expected to continue to rise due to increasing interest rates and the reversal of provisions related to the COVID-19 pandemic. The banks in question are First Abu Dhabi Bank, Emirates NBD, Abu Dhabi Commercial Bank, and Dubai Islamic Bank, which collectively account for 77% of banking assets in the country.

According to Moody, the improving operating environment has supported the profitability of these banks. At the end of 2021, the four lenders had a combined reported net profit of $9 billion, up from $8 billion in 2020 and $8.3 billion in 2019. Moody predicts that the bottom-line growth will continue in 2023, albeit at a slower pace.

The rating agency stated that the combined bottom-line profitability of the four banks exceeded pre-pandemic levels in 2022, reflecting strong growth in interest income and normalized provisioning charges. The recovery was driven by greater consumer confidence as macroeconomic conditions improved, boosted by rising oil prices and strong activity in non-oil sectors like trade and tourism.

Higher interest rates drove higher margins for banks, as well as growth in net interest income, which rose by 28% on an annual basis. The reversing interest rate cycle in 2021 also eased pressure on net interest margins.