Pressure on UAE banks' profit margins to continue into Q4 | ZAWYA MENA Edition

Pressure on UAE banks' profit margins to continue into Q4 | ZAWYA MENA Edition:

Although the top 10 UAE banks (by assets) reported a combined 25.5 percent year-on-year increase in the top line during the third quarter, a new report has revealed that margins are starting to come under pressure, and the impact is expected to continue in the fourth quarter. 

The bottom line was impacted adversely due to significant impairments reported by Emirates NBD (arising from the acquisition of DenizBank) and by ADIB. For rest of 2019, margins are likely to stay under pressure due to the interest rate cuts in September and October 2019, according to a recent report titled “UAE Banking Pulse” by global professional services firm Alvarez & Marsal (A&M).

Overall, banking profitability was influenced by lower gross yields and higher net impairment charges during the quarter, it said.

A&M Managing Director & Head of Financial Services Asad Ahmed, said: “The UAE banking sector maintained a modest growth, even though profitability was impacted by lower gross yields and higher net impairment charges during the quarter, a knock-on effect from the real estate and construction sectors. Looking ahead, we anticipate this pressure will continue as two successive rate cuts by the Fed in September and October 2019, are likely to put further pressure on banks’ margins. We expect that Q4 will not be dissimilar.”