UAE banks show resilience

Driven by an increase in the overall loan book and inorganic growth, the top ten listed banks of the UAE reported an average 13.9 per cent growth in net profit last year, the highest among GCC countries, according to KPMG.

"The UAE banking sector continues to show strength and resilience as top banks reported the region's highest growth in their asset base of 19.5 per cent with Emirates NBD recording the highest net profit across the GCC at $3.94 million, and the highest return on equity at 21.8 per cent, KPMG said in a report.

Across the GCC, banks have been showing resilience and strength as they encounter the challenges posed by the pandemic. While the majority of banks across the world will unavoidably face challenges in 2020, the GCC banking sector, although being no exception, is expected to be cushioned by the resilience and strength of the banking systems in the GCC countries, said the report.

Central banks across the GCC have taken significant strides to ease policy and provide liquidity to commercial banks and other non-financial institutions to ensure enough support to the private sector to mitigate the impact of Covid-19 and the recent drop in oil prices.

In the UAE, the Central Bank has rolled out stimulus measures and other proactive initiatives, including the slashing of the reserve requirements for bank demand deposits and increased its economic stimulus package to Dh256 billion to mitigate the impact of the virus outbreak. Reserve requirements for demand deposits for all banks in the UAE were halved from 14 per cent to 7.0 per cent in what is expected to inject about Dh61 billion into the banking system to support lenders and their liquidity management.

"The UAE banking sector has remained resilient with overall good performance from the top ten listed banks. These positive financial results, coupled with the increasing focus on 'digitisation' in the region, have resulted in a move towards a more innovative approach in new age banking," said Abbas Basrai, partner and head of Financial Services at KPMG lower Gulf.

Despite the turbulent economic environment, 2019 was an impressive year for the UAE banking sector with the top 10 listed banks experiencing a healthy surge of 13.9 percent in their net profits, driven by an increase in the overall loan book and inorganic growth, said the report.

The Central Bank of the UAE has announced several relief packages for banks to offset the negative fallouts from Covid-19 pandemic. "Banks must contend with a slew of new regulations, as well as consumer demands for innovative new digital banking products."

AbdulAziz Al Ghurair, chairman of the UAE Banks Federation, said the UBF is working closely with its member banks and the Central Bank of the UAE.

"Now more than ever, it is our responsibility as leaders in the banking sector to uphold our promise to protect the economy. We are entering a new phase of the pandemic, in which restrictions have been lifted and the economy is gradually reopening, so we must forge a path to help customers, businesses and industries overcome the challenges that lie ahead. We are using all our collective resources and tools to ensure we successfully navigate through the temporary difficulties we are facing as a nation, and once more prove our resilience and secure the future of the UAE."

"Looking to the future of the financial services sector in light of the current pandemic we are experiencing, banks will need to innovate now more than ever to reach their customers through digital platforms and new mediums. Banks that are agile, flexible and willing to transform their business models will succeed, and secure their financial strength for future growth, while those that rest on their laurels will be left behind," said Basrai.

Growth in GCC countries has declined sharply due to the plunge in oil prices by more than 60 per cent since the Covid-19 outbreak, falling to the lowest levels in the last two decades. According to the IMF regional economic outlook, GCC countries are projected to contract by 2.7 per cent in 2020.