UAE banks’ profits up 18.2% in 2011

Increase was mainly due to higher interest income and fall in expenses
UAE banks, which control the biggest asset base in the Middle East, boosted their net income by nearly 18.2 per cent in 2011 as they continued to pull out of the throes of the 2008 global financial distress, according to official data.

From around Dh22.5 billion in 2010, the net profits of the country’s 23 national banks and 28 foreign units swelled to nearly Dh26.6 billion in 2011, the Central Bank said, citing balance sheets by the banks.

It said the increase was mainly driven by a 3.8 per cent rise in banks’ net interest margins and a decline by around 6.9 per cent in interest expense.

“The UAE banking system was able to maintain sound levels of profit even during periods of stress,” the Central Bank said in a report.

It showed banks were able to increase their interest income on deposits with banks abroad by nearly Dh3.2 billion in 2011, a whopping 200 per cent rise from the level a year before.

On the other hand, the fall in interest expense was largely driven by the decrease of interest paid on advances to other customers (retail and corporate) which dropped by Dh3.5 billion in 2011, the report said?

“The shift of time deposits to demand and saving deposits which took place in 2011 played a major role in the reduction of interest expense paid on deposits.”

Banks’ non-interest income also declined by around Dh2.8 billion in 2011, it said, adding that the increase was mainly driven by the profit made on foreign exchange, which represented 36 per cent of the rise in non-interest income.

Turning to assets, the report said 2011 was a volatile year in terms of deposits inflow and outflow. During the first four months of the year, banks’ deposits base increased by around Dh 80 billion, of which 28 per cent was government deposits. After April 2011, the flow reversed direction and slackened till November 2011 when deposits started to pick-up again.

“During that period, banks saw a reduction of about Dh 75 billion in deposits from their peak of April 2011. The flow of deposits into the banking system during the first half of 2011 followed by the outflow during the second half could be attributed to various factors.”

It listed the following factors:

- Regional instability and the UAE’s perception as a safe haven.

- FX volatility where the strength of the US Dollar versus other currencies played a major role in the remittances market.

- Global liquidity situation.

- Debt repayments by major resident depositors to their foreign lenders.

Emirates 24|7 2012, Sep 16 2012