Today's Edition
HOSAM ABDULNABI (ALETIHAD)
UAE’s banks play a pivotal role in driving the growth and diversification of the national economy. As vital engines of economic activity, these banks have not only provided crucial financing for large-scale development projects but have also contributed significantly to economic and investment diversification through global expansion.
The leadership’s recognition of the banking sector’s importance has led to strategic mergers, resulting in the formation of giant banking entities that have been globally recognised for their safety. Moreover, the UAE banking sector has proven to be a reliable support system during global crises, as demonstrated by the effective support and assistance plans of the Central Bank of the UAE (CBUAE) during the challenging times of the COVID-19 pandemic.
Project Financing
The UAE banks actively support the private sector and finance development projects, injecting approximately Dh62.5 billion in new loans and facilities to private sector clients within 12 months. This substantial financial support has contributed to a total balance of Dh1.236 trillion by the end of September 2023, marking a growth rate of 5.3%.
The resident industrial and commercial sector received about Dh23 billion in new financing during the same period, reflecting lower risks due to the stability of companies and improved financial obligations fulfilment. The individual sector secured a share worth Dh40 billion, showcasing a diverse and robust financial ecosystem.
Bank Deposits and International Reserves
Total bank deposits in the UAE recorded a growth of 0.7%, reaching Dh2.42 trillion by the end of September 2023. Resident deposits saw an increase of 1.8%, driven by rises in public sector deposits, private sector deposits, and deposits of non-banking financial institutions by 9%, 1.3%, and 20.1%, respectively.
The International Reserves Reports issued by the CBUAE highlight the banking sector’s solidity, with total banking assets, including bank acceptance certificates, rising by 1.3% monthly to Dh3.952 trillion by the end of September 2023.
The net international reserves of the banking sector reached Dh1.038 trillion, reflecting a remarkable growth rate of 33.1% within a year.
Total reserves of banks operating in the country increased by 35.9% within 12 months, reaching Dh469.5 billion by the end of September 2023. The rise in the percentage of banks’ reserve requirements for demand deposits to 11% from April 2023, compared to 7% previously, indicates a significant increase in deposit balances and liquidity flow to banks.
Banking Investments and Profitability Growth
CBUAE data revealed that total investments of banks operating in the UAE reached a historic high of Dh593.9 billion at the end of September 2023, marking a remarkable annual growth of 22.9%. Investments in bonds held until maturity increased by about Dh100 billion during the comparison period, reaching Dh287 billion by the end of September 2023, indicating a growth of 52.8% over 12 months.
The banking sector’s profitability showed positive trends, as reported by global consulting institutions. Alvarez and Marsal reported an improvement in profitability for the third quarter of 2023, driven by a 15.4% increase in total operating income on a quarterly basis.
Net interest income witnessed strong growth (5.5%), and non-core income increased by 2.4%, while impairment provisions value decreased by -11.7% quarter-on-quarter. Despite challenges, the net interest margin increased by 8 basis points, showcasing the resilience of UAE banks.
Banking Entities and External Expansion
Strategic mergers in the UAE have resulted in the creation of giant banking entities that actively participate in the economic boom of the country. Notable mergers, such as the one between First Gulf Bank and National Abu Dhabi Bank, formed First Abu Dhabi Bank (FAB), contributing significantly to economic and investment diversification. The merger of Emirates and NBD resulted in the emergence of the Emirates NBD group, the largest banking group in the Middle East, with assets totalling approximately Dh698 billion at the end of 2020.
The role of UAE banks extends beyond supporting local companies, focusing on external expansion and trade with different countries. FAB, for instance, operates globally with a network of branches across five continents, providing trade financing solutions and serving as a strategic banking partner for local, regional, and international businesses.
Crises Resilience and High Trust Index
During the COVID-19 pandemic, UAE banks played a pivotal role in supporting the local economy and individuals, benefitting over 321.5 thousand beneficiaries through loan forgiveness programmes and comprehensive economic support plans. The effective measures included liquidity support, reduced reserve ratios, and support for individuals and distressed companies.
UAE banks recorded an impressive average customer confidence of 84% in 2022, according to the annual Trust Index survey. This figure surpassed the global average confidence index in banking sectors, positioning the UAE in second place globally and first in Asia, Africa, and Europe.
UAE banks stand as key players in fostering economic growth, ensuring financial stability, and contributing to global success. Their ability to navigate through global crises, support the private sector, and engage in external expansion reflects their resilience and strategic vision. The trust and confidence they instil among customers and investors reinforce their pivotal role in the UAE’s economic landscape.
As the banking sector continues to evolve, its impact on the national and global economy remains significant, making it an integral part of the UAE’s success story.
