uae banking pulse q1 2019 - alvarez and marsal · 2 alvarez & marsal middle east limited...

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SBU Name – Month Day, Year

Cover Slide Title

UAE Banking PulseQuarter 1, 2019

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Alvarez & Marsal Middle East Limited (A&M) is delighted to publish the Q1’19 edition of the UAE Banking Pulse (“The Pulse”). In this quarterly series, we share

results from our research examining the 9 largest listed UAE banks, and highlight key performance indicators of the UAE banking industry. The Pulse aims to

help banking executives and board members stay current on industry trends.

All the data used in this report has been obtained from publicly available sources. The methodology for the calculations is discussed in the glossary. Calculation

of several metrics has been changed from the previous version to accommodate available information.

We hope that you will find the Pulse useful and informative.

Disclaimer:

The information contained in this document is of a general nature and has been obtained from publicly available information plus market insights. The information is not intended to address the specific circumstances of an

individual or institution. There is no guarantee that the information is accurate at the date received by the recipient or that it will be accurate in the future. All parties should seek appropriate professional advice to analyze their

particular situation before acting on any of the information contained herein.

Foreword

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• 18+ years of international experience

in management consulting and

industry

• Focuses on strategic and

performance-related matters in

financial institutions, sovereign wealth

funds, family businesses, real estate,

private equity and private investments

• Emirati National, frequent speaker and

moderator in Banking & Finance

events

• Board member of the Bahrain Fintech

Bay

Contact Details:

Financialservices-

[email protected]

Phone: +97145671065

Authors

Dr. Saeeda Jaffar

Lead Author, Managing Director

Asad Ahmed

Co-Author, Managing Director

Neil Hayward

Co-Author, Managing Director

• 30+ years of experience in banking

• Focuses on performance

improvement, turn-around, credit

management, and formulating and

managing strategic and operational

changes in financial institutions

• Expertise in Financial Inclusion and

creation of digital wholesale and retail

banks

• Former CEO of banks in the UAE &

Kenya

• Served on the governing council of the

Kenyan Bankers’ Association

• 18+ years experience in turnaround

and restructuring in the Middle East,

Europe as well as the U.S

• Focuses on financial services and is

an expert in restructuring both

conventional finance and Islamic

finance facilities

• Advises financially distressed

companies, including playing a major

role as a board member

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Pulse: Increase in RoE driven by decrease in Cost-to-Income Ratio and

increase in NII, offset by declining NIM

Improved Stable Worsened

Key Trends this Quarter

Overall ROE has continued to

increase

C/I Ratio decreased, reversing last

quarter’s increase, in line with

seasonal trends

NIM continued to decrease due to

increase in CoF, offset partially by

increase in LDR

Deposits growth has turned negative

after 6 consecutive periods of

increase – overall LDR has

increased indicating tightening

liquidity

Operating income has grown

significantly from Q4’18 driven by an

increase in NII

Metric Q4 ’18 Q1 ’19 Q1 ’18 Q2 ’18 Q3 ’18 Q4 ’18 Q1 ’19

Size

Loans and Advances Growth (QoQ) 0.50% 1.54%

Deposits Growth (QoQ) 1.77% -0.67%

Liquidity Loan-to-Deposit Ratio (LDR) 86.4% 88.3%

Income &

Operating

Efficiency

Operating Income Growth (QoQ) 1.29% 3.09%

Operating Income / Assets 3.50% 3.55%

Non-Interest Income(NII)/Operating Income 29.4% 32.6%

Yield on Credit (YoC) 7.13% 7.12%

Cost of Funds (CoF) 2.12% 2.18%

Net Interest Margin (NIM) 2.51% 2.44%

Cost-to-Income Ratio (C/I) 33.5% 31.5%

Risk

Coverage Ratio 114.2% 110.1%

Cost of Risk (CoR) 0.80% 0.84%

Profitability

Return on Equity (RoE) 14.81% 15.56%

Return on Assets (RoA) 1.81% 1.91%

Return on Risk-Weighted Assets (RoRWA) 2.56% 2.69%

Capital Capital Adequacy Ratio (CAR) 17.23% 17.39%

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3

1

2

6

CoR continues to increase due to

increase in Net Loan Loss provisions5

Note 1: QoQ stand for quarter over quarter

Note 2: Growth in loans & advances and deposits were presented QoQ instead of YoY

Note 3: Quarterly income was used in the calculation of operating income growth

Source: Financial statements, Investor presentations, A&M analysis

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Overall, ENBD, CBD and ADCB outgrew the market with overall

liquidity tightening

L&A Growth QoQ (%)

• Overall L&A grew by 1.54%

while deposits decreased by

0.67%

• ENBD, CBD and ADCB

outgrew the market in both

L&A and deposits in Q1’19

• Mashreq and NBF lost

deposits and financing market

share

• FAB grew L&A share while

losing deposits share, leading

to tightening liquidity

-4

-3

-2

-1

0

1

2

3

4

-8 -7 -6 -5 -4 -3 -2 -1 0 1 2 3 4 5

Deposits Growth QoQ (%)

Q1’19 Av

Gained Financing MS Gained Deposits &

Financing MS

Gained Deposits MS Lost Depositing &

Financing MS

1.54%

-0.67%

Key takeaways

Note: MS stands for market share


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6

Eight of the nine banks are in green zone with liquidity of most banks

tightening

• Overall LDR increased to

88.3%

• LDR of FAB, MASHREQ and

NBF increased significantly

• FAB moved back to the green

zone in Q1’19

Key takeaways

Note: The blue zone is an area of healthy liquidity

Source: Financial statements, A&M analysis

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Loans to Deposits Ratio (%)

70

75

80

85

90

95

100

105

110

115

0 100 200 300 400 500 600 700 800

Millions

86.4%

Q4’18 AvQ4’18

Q1’19 AvQ1’19

88.3%

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Q1’19 NII supported the growth of Operating Income

• Overall Operating Income

increased by 3.1% compared

to Q4’18

• NII increased by 14.2% from

Q4’18, leading to an increase

in operating income, led by

increase in FAB, ENBD and

Mashreq

• Interest income decreased by

1.50% from Q4’18 due to

increase in interest expenses

Key takeaways

Note: Some numbers might not add up due to rounding

Source: Financial statements, investor presentations, A&M analysis

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Quarterly NII

(AED Bn)

Quarterly Operating Income

(AED Bn)

Quarterly Interest Income

(AED Bn)

+

5.49 5.545.36

5.55

6.34

Q1 ’18 Q3 ’18Q2 ’18 Q4 ’18 Q1 ’19

0.91% -3.25% 3.54%

14.23%

12.65

13.0513.28 13.32

13.12

Q3 ’18 Q1 ’19Q2 ’18Q1 ’18 Q4 ’18

3.16%

1.76%0.30% -1.50%

18.1018.55 18.59 18.82

19.40

Q1 ’18 Q1 ’19Q2 ’18 Q3 ’18 Q4 ’18

2.48% 0.20% 1.28%3.06%


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Decreasing trend of NIM continued in Q1’19

• NIM decreased by ~7 bps this

quarter, continuing downward

trend

• Increase in LDR offsets the

decrease in YoC and increase

in CoF

Key takeaways

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LDR (%)

Yield On Credit

(%, Quarterly Annualized)

2.55

2.60

2.57

2.51

2.44

Q1 ’19Q4 ’18Q1 ’18 Q3 ’18Q2 ’18

Net Interest Margin


1.49 1.70 1.88 2.12 2.18

Q4 ’18Q3 ’18Q2 ’18Q1 ’18 Q1 ’19

Cost Of Funds


X

6.216.55

6.807.13 7.12

Q1 ’19Q4 ’18Q1 ’18 Q3 ’18Q2 ’18

88.9 88.5 87.5 86.4 88.3

Q3 ’18 Q1 ’19Q2 ’18 Q4 ’18Q1 ’18

–

Note: Relation between elements above represents a functionality and not necessarily an exact mathematical formula


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NIM of six of the nine banks decreased

• Six of the banks witnessed a

decrease in NIM

• DIB, Mashreq and NBF

witnessed an expansion of

NIM in Q1’19

• FAB, with the lowest NIM of

1.83% in Q4’18 showed a

further decline of 0.09%

Key takeaways

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Net Interest Margin (%)

1.83

2.74 2.62 2.77 2.57

3.43

2.66

5.55

2.80

1.74

2.682.40

2.84 2.88 3.002.64

5.32

2.83-0.09

-0.06-0.22

+0.07 +0.31

-0.43

-0.02

-0.23

+0.03

Q4’18 Q4’18 Av

Q1’19 AvQ1’19

-0.11

2.51

2.44


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Cost-to-Income Ratio declined, in line with seasonal trends

• Overall C/I Ratio decreased

by ~ 204 bps mainly due to

decrease in SG&A

• Q1’19 C/I Ratio fell to its

lowest level since Q2’16

• Quarterly income increased

by 3.09%, supporting the

decrease of C/I Ratio

Key takeaways

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Quarterly Operating Expenses

(AED Bn)

32.9

33.133.0

33.5

31.5

Q2 ’18Q1 ’18 Q3 ’18 Q4 ’18 Q1 ’19

Cost to Income Ratio

(%, Quarterly)

5.86

6.15 6.15

6.32

6.12

Q1 ’18 Q2 ’18 Q4 ’18Q3 ’18 Q1 ’19

4.95%

0.00%2.76% -3.16%

/

Quarterly Operating Income

(AED Bn)

18.14

18.60 18.60

18.90

19.50

Q1 ’19Q3 ’18Q1 ’18 Q2 ’18 Q4 ’18

2.54%0.00%

1.61%

3.17%


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Cost-to-Income Ratio of seven banks decreased, reflecting tight cost

management

• Seven banks witnessed

decrease in their C/I Ratios

• ENBD, Mashreq, CBD and

NBF showed the largest

decline in C/I

• ADCB witnessed the largest

increase in C/I for Q1’19,

likely related to integration

costs

Key takeaways

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Note: Scaling and some numbers might not add up due to rounding


Cost to Income Ratio (%, Quarterly)

28.233.1 32.1

26.5

49.945.4

31.5

38.3 36.9

26.629.4

34.9

26.0

41.545.2

26.9

38.4

31.4

-1.60

-3.7

2.8

-0.5

-8.4

-0.2

-4.6

0.1

-5.5

Q4’18 Q4’18 Av

Q1’19 AvQ1’19

2.0

33.5

31.5


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Cost of Risk increased due to increase in Net Loan Loss Provisions

• CoR followed the upward

trend from Q3’18

• Rise led by an increase in Net

Loan Loss Provisions,

however partly offset by an

increase in Gross Loans

(from 1.31 to 1.34 AED Tn)

Key takeaways

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Quarterly Net Loan Loss Provisions

(AED Bn)

0.80

0.75 0.74

0.80

0.84

Q4 ’18Q3 ’18 Q1 ’19Q2 ’18Q1 ’18

Cost of Risk


2.502.40 2.42

2.64

2.78

Q1 ’19Q4 ’18Q3 ’18Q2 ’18Q1 ’18

/

Average Gross Loans

(AED Tn)

1.26

1.29

1.31 1.31

1.34

Q1 ’19Q4 ’18Q3 ’18Q2 ’18Q1 ’18


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Five of the top nine banks showed an increase in Cost of Risk

• Mashreq and RAKBANK

realized the highest decrease

in CoR

• ADCB and NBF showed the

greatest increase in CoR

followed by CBD

Key takeaways

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Cost of Risk (bps) – net of reversals

4672

3470

214

65

124

424

136

4463 75 92

142

91

157

398

171-2-9

4122

-72

26

33

-26

35

Q4’18 Q4’18 Av

Q1’19 AvQ1’19

4

84

80


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ROE has increased for six out of the nine banks

• Average ROE increased to

15.6% in Q1’19, from 14.8%

in Q4’18

• ADIB experienced the highest

decrease in ROE going from

21.8% to 16.2%

• Mashreq doubled ROE

compared to Q4‘18

Key takeaways

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0

4

8

12

16

20

24

0 100 200 300 400 500 600 700 800

MillionsAsset Size (AED Bn)

Return on Equity (%)

0.8

15.6

14.8

Q4’18 Q4’18 Av

Q1’19 AvQ1’19

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Non-Interest Income amount assured rise in Operating Income. Cost of

Funds and Risk continued to increase

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Return On Equity

(%)

Return On Assets

(%)

Cost / Income Ratio

(%)

Net Interest Margin

(%)

Op. Income /

Assets (%)

Non-Interest Income/

Op. Income (%)

Yield On Credit (%)

Cost Of Funds (%)

32.3 33.1 33.0 33.5 31.5

Q1

’19

Q3

’18

Q4

’18

Q2

’18

Q1

’18

3.58 3.63 3.54 3.50 3.55

Q2

’18

Q1

’19

Q4

’18

Q1

’18

Q3

’18

2.54 2.60 2.57 2.51 2.44

Q1

’19

Q1

’18

Q4

’18

Q3

’18

Q2

’18

30.2 29.8 28.8 29.432.6

Q1

’19

Q4

’18

Q3

’18

Q2

’18

Q1

’18

7.75 7.47 7.52 7.42 7.63

Q1

’19

Q3

’18

Q2

’18

Q1

’18

Q4

’18

0.80 0.75 0.74 0.80 0.84

Q1

’19

Q4

’18

Q2

’18

Q1

’18

Q3

’18

LDR (%)Assets / Equity (x) Cost Of Risk (%)

1.90 1.93 1.89 1.81 1.91

Q3

’18

Q1

’19

Q2

’18

Q1

’18

Q4

’18

1.49 1.70 1.88 2.12 2.18

Q1

’19

Q3

’18

Q4

’18

Q2

’18

Q1

’18

6.216.55

6.807.13 7.12

Q3

’18

Q4

’18

Q2

’18

Q1

’19

Q1

’18

88.9 88.5 87.5 86.4 88.3

Q1

’19

Q4

’18

Q2

’18

Q3

’18

Q1

’18

15.7 16.4 15.6 14.8 15.6

Q3

’18

Q1

’18

Q4

’18

Q2

’18

Q1

’19

• ROE maintains high

levels despite the

increase in CoR

• There is a slight

increase in Operating

Income/Assets

• NIM decreased due to

increase in CoF

• YoC slightly decreased

Key takeaways


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Glossary

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Glossary

MetricAbbreviatio

nDefinition

Size

Loans and Advances

GrowthQoQ growth in EOP net loans and advances for the top 9

Deposits Growth QoQ growth in EOP customer deposits for the top 9

Liquidity Loan-to-Deposit Ratio LDR (Net EOP loans and advances / EOP customer deposits) for the top 9

Income &

Operating

Efficiency

Operating Income

GrowthQoQ growth in aggregate quarterly operating income generated by the top 9

Operating Income /

Assets(Annualized quarterly operating income / quarterly average assets) for the top 9

Non-Interest Income /

Operating Income(Quarterly non-interest income / quarterly operating income) for the top 9

Net Interest Margin NIM(Aggregate annualized quarterly net interest income) / (quarterly average earning assets) for the top 9

Earnings assets are defined as total assets excluding goodwill, intangible assets, and property and equipment

Yield on Credit YoC (Annualized quarterly gross interest income / quarterly average loans & advances) for the top 9

Cost of Funds CoF(Annualized quarterly interest expense + annualized quarterly capital notes & tier I sukuk interest) / (quarterly

average interest bearing liabilities + quarterly average capital notes & tier I sukuk interest) for the top 9

Cost-to-Income Ratio C/I (Quarterly operating expenses / quarterly operating income) for the top 9

RiskCoverage Ratio (Loan loss reserves / non-performing loans) for the top 9

Cost of Risk CoR (Annualized quarterly provision expenses net of recoveries / quarterly average gross loans) for the top 9

Profitability

Return on Equity RoE(Annualized quarterly net profit attributable to the equity holders of the banks – annualized quarterly capital notes

& tier I sukuk interest) / (quarterly average equity excluding capital notes) for the top 9

Return on Assets RoA (Annualized quarterly net profit / quarterly average assets) for the top 9

Return on Risk-

Weighted AssetsRoRWA (Annualized quarterly net profit generated / quarterly average risk-weighted assets) for the top 9

Capital Capital Adequacy Ratio CAR (EOP tier I capital + tier II capital) / (EOP risk-weighted assets) for the top 9

Note: LTM and EOP stand for last twelve months and end of period respectively

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Glossary (Cont’d)

Note: Banks are sorted by assets size

Bank Assets (AED Bn) Abbreviation Logo

First Abu Dhabi Bank 733.2 FAB

Emirates NBD 530.2 ENBD

Abu Dhabi Commercial Bank 292.1 ADCB

Dubai Islamic Bank 224.5 DIB

Mashreq Bank 132.5 Mashreq

Abu Dhabi Islamic Bank 124.6 ADIB

Commercial Bank of Dubai 76.2 CBD

National Bank of Ras Al-Khaimah 52.7 RAK

National Bank of Fujairah 40.0 NBF

Union National Bank Delisted UNB

uae banking pulse q1 2019 - alvarez and marsal · 2 alvarez & marsal middle east limited...

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