UAE Banking Pulse - alvarezandmarsal.com

UAE Banking PulseQuarter 1, 2021

FOREWORD Alvarez & Marsal Middle East Limited (A&M) is delighted to publish the Q1’21 edition of the UAE

Banking Pulse (“The Pulse”). In this quarterly series, we share results from our research examining the

top ten largest listed UAE banks by assets, and highlight key performance indicators of the sector. 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 and the methodology

for the calculations is discussed in the glossary. Calculation of metrics has been updated, where

required, to reflect appropriate comparative information.

Top ten UAE banks started the year on a mixed note, as total net income rebounded sharply (+85%

QoQ), while loan & advances continued to contract (-0.7% QoQ). Asset quality deteriorated for the sixth

straight quarter, with NPL/net loans ratio reaching 6.3%. The extension of the TESS program until

June’22 has delayed a likely deterioration of the sector’s asset quality.

Despite a strong increase in RoE (+4.7% points QoQ), it still remains in single digits (9.7%). While there

has been an improvement in profitability metrics, the recovery path for the sector remains fairly long.

We hope 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 fut ure. All

parties should seek appropriate professional advice to analyze their particular situation before acting on any of the informa tion

contained herein2

Author

3

Asad Ahmed

Managing Director

Head of ME Financial Services

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

Former CEO of banks in the UAE & Kenya

[email protected]

Phone: +97145671065

CONTACT

DETAILS

mailto:[email protected]

UAE Macro & Sector Overview

1 IMF, 2 US Board of Federal Reserve, 3 UAE Central Bank, 4 DIB’s net income adjusted for one-time gains of AED 1.0bn on

bargain purchase in 2020, 5 Bloomberg & A&M Analysis, 6 based on data of 8 banks, weighted average exposure of all

banks; for consistency purpose data for all banks is captured from IR presentations * Data for top ten UAE banks by asset

size as of March 31st 2021 4

Macro overview Banking overview Q1’21

In April’21, the US Fed reaff irmed to keep interest rate at

record low levels until substantial progress in labor market is

w itnessed. How ever, risks of higher inf lation could potentially

challenge the Fed’s stance over the coming period

The overnight EIBOR saw a marginal decrease in Q1’21 by

~3.5 bps to 0.11% compared to Q4’20

The UAE’s central bank has extended its TESS program until

the end of June’22 to offset the impact of pandemic. The

banks’ draw dow n under the scheme reached AED 22bn as

on March’21 from AED 44bn in Q2’20

The UAE banks’ exposure to the real estate and construction

sector reduced by ~50 bps6 QoQ

The ongoing headw inds in the nation’s real estate market are

likely to continue in the near term. The sector is expected to

rebound over the medium to long term, driven by measures

such as offering citizenships and golden visas

21.7 21.7 21.4 22.3 21.8

Q1

'20

Q2

'20

Q3

'20

Q4

'20

Q1

'21

Real Estate & Construction as %

of Total Gross Loans4

0.3 0.3 0.3 0.3 0.3

0.6

0.1 0.1 0.1 0.1

Q1

'20

Q2

'20

Q3

'20

Q4

'20

Q1

'21

US Fed Funds Rate2, EIBOR, %

US Fed rate movement Overnight EIBOR

Total interest income of top ten UAE banks continued to decline

for the f if th consecutive quarter (-4.1% QoQ), on the back of

persistently low interest rate environment

Aggregate net income increased substantially by ~85% QoQ,

due to decline in operating expenses and impairment charges

w hich supported the overall profitability

UAE’s strong f iscal and external positions w ill continue to

support the fundamentals of the banking sector. How ever,

persistent pressure on real estate sector continue to pose

increased risks for UAE banks

The IM F, in its April’21 review, upgraded UAE’s

economic growth forecast to +3.1% from +1.3% for

FY’21, citing swift vaccination drives in the country

Average Q1’21 UAE’s Purchasing Managers’ Index (PMI)

increased to 51.5 compared to 50.1 in Q4’20, supported by

boost in business confidence

The country’s Economy M inister announced a plan to

double the size of the economy to AED 3tn by FY’31,

through the means of technological adoption

1.7

(5.9)

3.1 2.6 2.6

2019

20

20E

202

1F

20

22F

20

23F

UAE GDP Growth Rate1, %

M2 money supply rose by 1.2% during Dec’20 - Feb’21 to

AED 1,496.0bn. It increased by 4.9% YoY

M2 money supply increased as quasi monetary deposits grew

by 4.6% betw een Dec’20 and Feb’21

M1 money supply increased by 4.1% during Dec’20 - Feb’21

to AED 624.9bn. On an annual basis, M1 increased by 18.0%

M3 money supply decreased by 0.2% during Dec’21 - Feb’21,

due to 7.0% fall in government deposits. On an annual basis,

M3 increased by 4.3%

In January’21 FAB announced plans to acquire Bank Audi

SAE, the Egyptian arm of Lebanon-based Bank Audi SAL.

The acquisition has been closed in April’21

On the other hand, Emirates NBD Bank had entered into

an agreement w ith Eradah Capital to sell a controlling

interest in Dubai Bank. The deal is expected to be

completed by the end of 2021

5.4

2.7

1.9

5.6

4.1

3.0

0.2 0.7

0.7

1.2

-0.2

2.2 3

.0

-2.0

-0.2

-3.0

-2.0

-1.0

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

Q1

'20

Q2

'20

Q3

'20

Q4

'20

Fe

b'2

1

M1 M2 M3

UAE MoneySupply3, (%, Quarterly)

-3.9%-12.7%-7.7% -1.6% -4.1%

-31.8%

21.2%

-3.0%

-40.1%

84.8%

-60.0%

-40.0%

-20.0%

0.0%

20. 0%

40. 0%

60. 0%

80. 0%

100.0%

Q1

'20

Q2

'20

Q3

'20

Q4

'20

Q1

'21

UAE Banks’ Profitability4, %*

Interest Income % QoQ Net Income % QoQ

0.0

1.0

2.0

Q1

'20

Q2

'20

Q3

'20

Q4

'20

Q1

'21

UAE Banking M&A Deals5

# of deals

Pulse: Profitability Metrics of the UAE Banking Sector Increase, as Impairment and Operating Expenses Decline

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

Metric Q4’20 Q1’21 Q1’20 Q2’20 Q3’20 Q4’20 Q1’21

SizeLoans and Advances (L&A) Growth (QoQ) -0.4% -0.7%

Deposits Growth (QoQ) -2.8% 1.2%

Liquidity Loan-to-Deposit Ratio (LDR) 86.2% 84.5%

Income &

Operating Efficiency

Operating Income Growth (QoQ) 2.7% 1.3%

Operating Income / Assets 2.8% 2.9%

Non-Interest Income(NII) / Operating Income 30.6% 34.9%

Yield on Credit (YoC) 5.3% 5.1%

Cost of Funds (CoF) 1.2% 1.2%

Net Interest Margin (NIM) 2.1% 2.0%

Cost-to-Income Ratio (C/I) 36.7% 33.1%

RiskCoverage Ratio 91.8% 91.0%

Cost of Risk (CoR) 2.0% 1.3%

Profitability

Return on Equity (RoE) 5.0% 9.7%

Return on Assets (RoA) 0.6% 1.1%

Return on Risk-Weighted Assets (RoRWA) 0.9% 1.7%

Capital Capital Adequacy Ratio (CAR) 17.6% 17.4%

Key Trends of Q1’21

1

2

3

4

5

6

7

8

L&A declined for the third consecutive quarter (-0.7% QoQ). Deposits increased 1.2% QoQ, after declining in the preceding quarter

RoRWA increased in line with higher net income, while the capital adequacy ratio declined from 17.6% to 17.4%

RoE and RoA increased significantly due to ~85% QoQ increase in aggregate net profit

CoR declined to 1.3% as compared to 2.0% due to 36% QoQ decrease in impairment allowances. Coverage ratio declined to 91.0% from 91.8%

C/I ratio decreased to its lowest level in past seven quarters to 33.1%, driven by 9% QoQ decrease in SG&A expenses

NIM contracted by 10 bps QoQ, as industry-wide rates continue to decline in Q1’21

Operating income growth slowed to 1.3% QoQ, largely on the back of decline in net interest income

LDR decreased to 84.5% from 86.2%, as deposits increased while L&A declined

Improved Stable Worsened

5

FAB Underperformed its Peers on L&A Growth, while SIB’s Deposits Increased Substantially

Note: MS stands for market share

Source: Financial statements, Investor presentations, A&M analysis 6

Top ten UAE banks’ L&A decreased by 0.7% QoQ while the deposits increased by 1.2% QoQ

FAB’s L&A fell 2.2%, on the back of muted demand and repayments in GRE loan book. CBD reported highest increase in L&A (+6.6% QoQ)

SIB reported the highest increase in deposits (+5.6% QoQ), supported by sizeable growth in time deposits (+6.4% QoQ)

On the other hand, ADCB witnessed the highest drop in deposits (-5.0% QoQ), as time deposits decreased 18.7% QoQ

KEY TAKEAWAYS

L&A Growth QoQ (%)

Deposits Growth QoQ (%)

Lost Deposits & Financing MS

Gained Financing MS

Gained Deposits MS

Gained Deposits & Financing MS

Q1’21 Av

1.2%

-0.7%

1

-3.0

-1.0

1.0

3.0

5.0

7.0

-6.0 -4.0 -2.0 0.0 2.0 4.0 6.0 8.0 10.0

65

70

75

80

85

90

95

100

105

0 100 200 300 400 500 600 700 800 900 1000

Millions

Aggregate LDR Decreased After Increasing in the Preceding Quarter

Aggregate LDR decreased to 84.5% in Q1’21 compared to 86.2% in Q4’20

FAB (-5.0% points QoQ) reported the highest decline in LDR to 66.5%

NBF (+4.9% points) and CBD (+4.6% points) reported the highest increase in their LDR during the quarter

Note: The green zone is an area of healthy liquidity

Source: Financial statements, A&M analysis 7

KEY TAKEAWAYS

2

Loans to Deposits Ratio (%)

Total Asset (AED Bn)

Q4’20 AvQ4’20

Q1’21 AvQ1’21

84.5%86.2%

Operating Income Increased as Higher Fees and Other Operating Income Offset Reduced NII

Note: Some numbers might not add up due to rounding

Source: Financial statements, investor presentations, A&M analysis 8

Operating income increased by 1.3% QoQ, driven by 19.2% QoQ growth in fee income and 11.7% QoQ growth in other operating income

This was partially offset by 5.0% QoQ decline in net interest income due to lower interest rates

ENBD (+25.% QoQ) reported the highest increase in its total operating income, as fee income grew by 42%

The bank’s fee income increased on account of higher business volumes

Meanwhile, CBD (-17.3% QoQ) reported highest decline in operating income, followed by DIB (-12.2% QoQ)

KEY TAKEAWAYS

22.6

20.5

19.9 20.4

20.7

10.0

12.0

14.0

16.0

18.0

20.0

22.0

24.0

Q1'20 Q2'20 Q3'20 Q4'20 Q1'21

6.7

5.8 6.1 6.2

7.2

Q1'20 Q2'20 Q3'20 Q4'20 Q1'21

15.9

14.7

13.7 14.2

13.5

Q1'20 Q2'20 Q3'20 Q4'20 Q1'21

Quarterly NII

(AED Bn)

Quarterly Operating Income

(AED Bn)

Quarterly Net Fee commission and other

Operating Income (AED Bn)

+


3

NIM Declined After Rising in the Previous Quarter

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


NIM decreased by ~10 bps QoQ to 2.0%, falling to its multi-period low levels

Yield on credit declined by 19 bps QoQ to 5.1%, while cost of funds remained largely flat at 1.2%

KEY TAKEAWAYSYield On Credit

(Quarterly Annualized)

Net Interest Margin

(%,Quarterly Annualized)

Cost of Funds

(Quarterly Annualized)

–

1.9%1.5% 1.3% 1.2% 1.2%

Q1'20 Q2'20 Q3'20 Q4'20 Q1'21

6.7% 5.8% 5.3% 5.3% 5.1%

Q1'20 Q2'20 Q3'20 Q4'20 Q1'21

87.7% 87.7%

84.1%

86.2%84.5%

Q1'20 Q2'20 Q3'20 Q4'20 Q1'21

Loan-to-Deposit Ratio (LDR) x

4

2.51

2.26

2.05 2.09 2.00

Q1'20 Q2'20 Q3'20 Q4'20 Q1'21

1.3

7

2.4

9

2.4

5

2.3

8

1.7

3

2.6

9

2.3

8

2.1

3

4.5

2

2.4

0

1.2

0

2.5

1

2.2

1

2.3

0

2.0

0

2.5

1

2.1

0

2.0

1

4.2

2

2.4

9

NIM Deteriorated for Most of the Banks

NIM declined to a multi-year low, decreasing by ~10 bps QoQ to 2.0%, as funding costs remained flat whereas asset yields decreased

RAK reported the highest decline in NIM (~30 bps QoQ), followed by CBD (~27 bps QoQ)

MSQ (+27 bps QoQ), NBF (+9 bps QoQ) and ENBD (+2 bps QoQ) were the only banks which saw higher NIM



KEY TAKEAWAYSNet Interest Margin (%, Quarterly)


2.1%2.0%

Q4’20 Q4’20 Av Q1’21 AvQ1’21

4

0.02-0.24

-0.18-0.08

-0.30

-0.17

0.27-0.27 -0.13

0.09

7.7

6.9 6.8

7.5

6.8

Q1'20 Q2'20 Q3'20 Q4'20 Q1'21

Cost to Income Ratio Decreased due to Lower Operating Costs



C/I ratio decreased to 33.1% after increasing for two consecutive quarters

Operating expenses declined by ~9% QoQ, after increasing sharply (+10% QoQ) in the preceding quarter

ENBD (-8.7% QoQ) reported a sizeable decline in expenses, as staff costs reduced 6.3% QoQ

MSQ’s (-41.6% QoQ) operating expenses also reduced substantially, as the bank had incurred branch rationalization expense in Q4’20

KEY TAKEAWAYS


Quarterly Operating Expenses

(AED Bn)

Cost to Income Ratio

(%, Quarterly Annualized)

Quarterly Operating Income

(AED Bn)

÷

22.6 20.5 19.9 20.4 20.7

Q1'20 Q2'20 Q3'20 Q4'20 Q1'21

33.8%

33.4%

34.3%

36.7%

33.1%

31. 0%

32. 0%

33. 0%

34. 0%

35. 0%

36. 0%

37. 0%

Q1'20 Q2'20 Q3'20 Q4'20 Q1'21

5

25.8

41.5

35.0

23.4

90.1

40.6

24.9

45.1

45.0

42.1

30.1

30.3

36.3

27.5

44.0

44.3

27.3

38.2

41.2

31.1

Efficiency Ratios of MSQ and ENBD Witnessed the Highest Improvement

Five of the top ten banks reported decreased C/I ratio

MSQ’s C/I ratio decreased the most (+46.1% points QoQ)

Similarly, ENBD’s C/I ratio improved by 11.2% points QoQ followed by NBF’s (-11.0% points QoQ)

ENBD’s C/I ratio improved on the back of lower marketing expenses

On the other hand, FAB reported the highest deterioration in C/I ratio (+4.3% points QoQ), as other administration expenses increased ~25% QoQ

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

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

*Comparison on QoQ basis 12

KEY TAKEAWAYSCost to Income Ratio (%, Quarterly)


5

Q4’20 Q4’20 Av Q1’21 AvQ1’21

36.7%33.1%

3.8

-11.2

-6.8

-3.8

-11.0

4.1 2.4

-46.1

4.3

1.3

131 129 131 129125

4.2 4.8

5.5 5.6 5.8

-

1.0

2.0

3.0

4.0

5.0

6.0

7.0

8.0

-

20.0

40.0

60.0

80.0

100. 0

120. 0

140. 0

Q1

'20

Q2

'20

Q3

'20

Q4

'20

Q1

'21

Aggregate Coverage Ratio Decreased; NPL/Net Loan Ratio Increased for the Sixth Consecutive Quarter Aggregate coverage ratio for the banks

decreased to 91.0% from 91.8%

UAE banks need to book AED 18.2bn

worth of more provisions (20% more

than FY’20 provisions) to have 100%

coverage ratio

Coverage ratio of MSQ (-23.5% points

QoQ) and ADCB (-5.2% points QoQ)

declined the most

ADCB need to book AED 5.5bn more

provisions (1.4x FY’20 provisions) to

have a coverage ratio of 100%

ADIB would need AED 3.6bn of

additional provisions (2.8x FY’20) to

reach 100% coverage ratio levels

Aggregate NPL / net loan ratio continued

to rise for the sixth consecutive quarter to

reach 6.3%, as NPLs increased ~1.7%


Source: Financial statements, investor presentations, A&M analysis, 1 accumulated allowance for impairment / NPL 13

KEY TAKEAWAYS

Coverage Ratio1 and NPL / Net Loans Ratio (%, Quarterly)

Coverage Ratio, % NPL / Net loans, %

6

83 80 82 79 79

3.6 4.1 4.0 4.1

4.2

-

1.0

2.0

3.0

4.0

5.0

6.0

7.0

-

20.0

40.0

60.0

80.0

100. 0

Q1'2

0

Q2

'20

Q3

'20

Q4

'20

Q1

'21

129 125 127 123 131

5.9 6.2 6.4 6.7 6.6

-

1.0

2.0

3.0

4.0

5.0

6.0

7.0

8.0

9.0

-

20.0

40.0

60.0

80.0

100. 0

120. 0

140. 0

Q1

'20

Q2

'20

Q3'2

0

Q4

'20

Q1

'21

7270 67

7367

5.0

5.6 6.0

6.6

7.2

-

1.0

2.0

3.0

4.0

5.0

6.0

7.0

8.0

-

20.0

40.0

60.0

80.0

100. 0

120. 0

Q1

'20

Q2'2

0

Q3

'20

Q4

'20

Q1'2

1

89

74 7370 68

4.5 4.8 5.1

6.1 6.6

-

1.0

2.0

3.0

4.0

5.0

6.0

7.0

8.0

9.0

-

20.0

40.0

60.0

80.0

100. 0

120. 0

Q1'2

0

Q2

'20

Q3

'20

Q4'2

0

Q1

'21

100 98

117126

103

5.5 5.6 5.4

6.4 6.2

-

1.0

2.0

3.0

4.0

5.0

6.0

7.0

8.0

9.0

-

20.0

40.0

60.0

80.0

100. 0

120. 0

140. 0

Q1

'20

Q2

'20

Q3'2

0

Q4

'20

Q1

'21

51 49 4852 53

8.2 8.8

9.4 9.2 9.3

-

2.0

4.0

6.0

8.0

10.0

12.0

14.0

16.0

18.0

-

10.0

20.0

30.0

40.0

50.0

60.0

70.0

Q1

'20

Q2

'20

Q3'2

0

Q4

'20

Q1

'21

8272 76

81 83

6.9

7.3 7.3

7.1

6.9

6.6

6.7

6.8

6.9

7.0

7.1

7.2

7.3

7.4

-

20.0

40.0

60.0

80.0

100. 0

120. 0

Q1

'20

Q2

'20

Q3'2

0

Q4

'20

Q1

'21

92 9086

94 93

4.4 4.5 5.0 4.7 4.9

-

1.0

2.0

3.0

4.0

5.0

6.0

7.0

8.0

9.0

10.0

-

20.0

40.0

60.0

80.0

100. 0

120. 0

Q1

'20

Q2'2

0

Q3

'20

Q4

'20

Q1

'21

7565 66

81 77

7.1 7.9

9.0

10.9 10.9

-

2.0

4.0

6.0

8.0

10.0

12.0

14.0

-

20.0

40.0

60.0

80.0

100. 0

Q1

'20

Q2

'20

Q3'2

0

Q4

'20

Q1

'21

NPL/Net Loans Ratio (Aggregate %)

5.1 5.5 5.7 6.1 6.3

-

1.0

2.0

3.0

4.0

5.0

6.0

7.0

Q1'20 Q2'20 Q3'20 Q4'20 Q1'21

Cost of Risk Declined Significantly as Provisioning Decreased



Aggregate cost of risk decreased by ~72 bps QoQ, as total provisioning decreased ~36.1% to AED 5.3bn

Overall decrease in provisioning was driven by lower impairments from NBF (-71.7% QoQ), DIB (-60.5% QoQ) and MSQ (-58.5%)

FAB (+48.1% QoQ) and ENBD (+11.9% QoQ) were the only banks which reported an increase in provisions

KEY TAKEAWAYSQuarterly Net Loan Loss Provisions

(AED Bn)

Cost of Risk

(%, Quarterly Annualized)

Average Gross Loans

(AED Bn)

÷

2.06%

1.42%

1.31%

2.01%

1.29%

Q1'20 Q2'20 Q3'20 Q4'20 Q1'21

8.4

5.9 5.5

8.4

5.3

Q1'20 Q2'20 Q3'20 Q4'20 Q1'21

1,642

1,6601,664 1,663

1,653

Q1'20 Q2'20 Q3'20 Q4'20 Q1'21


6

Most Banks Reported Lower Cost of Risk, as Impairment Allowances Reduced on Improved Macroeconomic Conditions

Eight of the top ten banks reported a decrease in cost of risk, as improved macroeconomic environment led to lower provisioning

NBF (-776.8 bps QoQ) and MSQ (-519.2 bps QoQ) reported the highest decline in cost of risk

ADCB’s cost of risk fell 36 bps QoQ. The bank has stated that it has booked sufficient provisions related to NMC Health, Finablr and related companies

ENBD’s cost of risk increased 16.4 bps QoQ, as the bank reported increased provisions under its corporate segment



KEY TAKEAWAYSCost of Risk (bps) – Net of Reversals

6


Q4’20 Q4’20 Av Q1’21 AvQ1’21

128.9

201.2

-104.0

15.7

-224.6

-776.8

-73.5

-519.2

-94.9-36.016.4

-25.8

31.4

131.4

149.2

371.2

879.2

165.2

205.7

136.2

465.6

1,0

81.0

47.1

147.8

113.2

146.6

360.0

61.2

110.8

62.8

439.8

304.2

-60

-50

-40

-30

-20

-10

0

10

20

30

0 200 400 600 800 1,000Millions

RoE Increased Supported by Improved Profitability

Aggregate RoE improved from 5.0% in Q4’20 to 9.7% in Q1’21, as net income increased 85% QoQ

While there was an increase, RoE continued to remain in single-digits

MSQ and NBF reported substantial increase in RoEs as both banks had reported losses in Q4’20

All the banks except FAB reported a growth in RoE

FAB’s RoE fell 3.0% points QoQ to 10.2%, on the back of 23% drop in net income (as NII fell 12% QoQ and provisions increased 48% QoQ)


KEY TAKEAWAYS

Return on Equity (%)

7

Asset Size (AED Bn)

5.0%

9.7%

Q4’20 AvQ4’20

Q1’21 AvQ1’21

Recovery of the UAE’s Banking Sector Remains Fragile

Note: All the charts above are based on L3M numbers

Op Income stands for Operating Income

Scaling and some numbers might not add up due to rounding


While there was a sizeable improvement in the sector’s profitability, the recovery remains fairly fragile

The extension of the TESS program until June’22 has delayed a likely deterioration of the sector’s asset quality

Income streams are expected to remain under pressure, as interest rates are likely to remain at historic low levels in the foreseeable future

The sector could witness the next wave of M&A once the full impact of the pandemic headwinds are visible

KEY TAKEAWAYS

Net Interest Margin (%) Cost of Funds (%)

Non-Interest Income /

Op. Income (%)

Yield On Credit (%)

LDR (%)

Return on Equity (%)

7.6 9.4 8.8

5.0

9.7

Q1

'20

Q2

'20

Q3

'20

Q4

'20

Q1

'21

Return on Assets (%)

0.9 1.1 1.0

0.6

1.1

-

0.2

0.4

0.6

0.8

1.0

1.2

Q1

'20

Q2

'20

Q3

'20

Q4'2

0

Q1

'21

Assets / Equity (x)

8.3 8.2 8.2

7.8

8.1

Q1

'20

Q2

'20

Q3

'20

Q4'2

0

Q1

'21

29.8 28.4 30.9 30.6 34.9

Q1

'20

Q2

'20

Q3

'20

Q4

'20

Q1

'21

2.5 2.3 2.0 2.1 2.0

Q1'2

0

Q2

'20

Q3

'20

Q4

'20

Q1'2

1

6.7 5.8 5.3 5.3 5.1

Q1

'20

Q2'2

0

Q3

'20

Q4

'20

Q1

'21

1.9 1.5 1.3 1.2 1.2

Q1

'20

Q2'2

0

Q3

'20

Q4

'20

Q1

'21

87.7 87.7

84.1

86.2

84.5

Q1

'20

Q2

'20

Q3

'20

Q4

'20

Q1

'21


Cost / Income Ratio (%)

Cost of Risk (%)

Op. Income / Assets (%)

33.8 33.4 34.3

36.7

33.1

Q1

'20

Q2

'20

Q3

'20

Q4'2

0

Q1

'21

2.1

1.4 1.3

2.0

1.3

Q1'2

0

Q2

'20

Q3

'20

Q4'2

0

Q1

'21

3.4 3.0 2.8 2.8 2.9

Q1

'20

Q2

'20

Q3

'20

Q4

'20

Q1

'21

7

GCC Banking Consolidation

GCC list of M&A transactions in banking sector since January 2019

Announcement Date Target Company Target Country Acquirer Company % SoughtConsideration

(AED Mn)Deal Status*

20-Jan-21 Bank Audi SAE (Egypt) Egypt First Abu Dhabi Bank PJSC 100% NA Completed

16-Sep-20 Ahli United Bank Egypt SAE Egypt Ahli United Bank BSC 14.4% 298 Pending

30-Jun-20 Al Khalij Commercial Bank PQSC Qatar Masraf Al Rayan QSC 100% 4,404 Pending

25-Jun-20 Samba Financial Group SJSC Saudi Arabia National Commercial Bank SJSC 100% 57,252 Completed

31-Dec-19 Alizz Islamic Bank SAOG Oman Oman Arab Bank SAOC 81% NA Completed

12-Sep-19 Ahli United Bank BSC Bahrain Kuwait Finance House KSCP 100% 21,431 Pending

15-Aug-19 Cqur Bank LLC Qatar VTB Bank PJSC 19% NA Completed

08-Aug-19 DenizBank AS Turkey Emirates NBD PJSC 0.20% NA Completed

20-Jun-19 Warba Bank KSCP Kuwait Kuwait & Middle East Financial Investment Co KSCP 75.70% NA Proposed

12-May-19 Gulf Bank KSCP Kuwait Alghanim Industries Ltd 16% NA Completed

21-Apr-19 HSBC Saudi Arabia Ltd Saudi Arabia HSBC Holdings PLC 2% 31 Completed

10-Apr-19 Invest bank PSC UAE Emirate of Sharjah United Arab Emirates 50% 989 Completed

07-Apr-19 Noor Bank PJSC UAE Dubai Islamic Bank PJSC 100% NA Completed

03-Apr-19 Oman United Exchange Co Oman Private Investor 25% NA Completed

15-Mar-19 Banque Saudi Fransi Saudi Arabia Olayan Investments, Ripplewood Advisors LLC 5% 1,609 Completed

29-Jan-19 Union National Bank PJSC UAE Abu Dhabi Commercial Bank PJSC 100% 11,531 Completed

29-Jan-19 Al-Hilal Bank PJSC UAE Abu Dhabi Commercial Bank PJSC 100% NA Completed

Source: Bloomberg*Proposed Status: Board suggests shareholders to consider the acquisition*Pending Status: Acquisition has announced

*Completed Status: Acquisition has completed 18

GLOSSARY

Glossary

19

Glossary

Metric Abbreviation Definition

SizeLoans and Advances Growth QoQ growth in EOP net loans and advances for the top 10

Deposits Growth QoQ growth in EOP customer deposits for the top 10

Liquidity Loan-to-Deposit Ratio LDR (Net EOP loans and advances / EOP customer deposits) for the top 10

Income &

Operating Efficiency

Operating Income Growth QoQ growth in aggregate quarterly operating income generated by the top 10

Operating Income / Assets (Annualized quarterly operating income / quarterly average assets) for the top 10

Non-Interest Income / Operating Income

(Quarterly non-interest income / quarterly operating income) for the top 10

Net Interest Margin NIM(Aggregate annualized quarterly net interest income) / (quarterly average earning assets) for the top 10Earnings 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 10

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 10

Cost-to-Income Ratio C/I (Quarterly operating expenses / quarterly operating income) for the top 10

RiskCoverage Ratio (Loan loss reserves / non-performing loans) for the top 10

Cost of Risk CoR (Annualized quarterly provision expenses net of recoveries / quarterly average gross loans) for the top 10

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 10

Return on Assets RoA (Annualized quarterly net profit / quarterly average assets) for the top 10

Return on Risk-Weighted Assets RoRWA (Annualized quarterly net profit generated / quarterly average risk-weighted assets) for the top 10

Capital Capital Adequacy Ratio CAR (EOP tier I capital + tier II capital) / (EOP risk-weighted assets) for the top 10

Note: LTM and EOP stand for last twelve months and end of period respectively 20

Glossary (cont’d.)

Note: Banks are sorted by assets size

• As on 31st March 2021 21

Bank Assets (AED Bn)* Abbreviation Logo

First Abu Dhabi Bank 940.7 FAB

Emirates NBD 695.1 ENBD

Abu Dhabi Commercial Bank 395.8 ADCB

Dubai Islamic Bank 291.7 DIB

Mashreq Bank 162.3 MSQ

Abu Dhabi Islamic Bank 130.7 ADIB

Commercial Bank of Dubai 102.5 CBD

Sharjah Islamic Bank 54.9 SIB

National Bank of Ras Al-Khaimah 53.2 RAK

National Bank of Fujairah 39.1 NBF

UAE Banking Pulse - alvarezandmarsal.com

Documents

Transcript of UAE Banking Pulse - alvarezandmarsal.com