Banks in the United Arab Emirates (UAE) are bracing for a decline in profits for the second quarter (Q2) of 2024, according to a recent report by CI Capital. This stands in stark contrast to the performance expected from Saudi Arabian banks, which are projected to deliver the highest year-on-year (YoY) earnings growth within the Gulf Cooperation Council (GCC) region.
The report, which analyzed the performance of major UAE banks including First Abu Dhabi Bank, Abu Dhabi Islamic Bank (ADIB), Abu Dhabi Commercial Bank, Emirates NBD, and Dubai Islamic Bank, predicts a decrease in both quarterly and annual earnings. This decline is attributed to a slowdown in loan and deposit growth compared to the previous quarter.
Q1 2024 saw a surge in these areas due to a one-off adjustment in banks' foreign currency (FCY) books following the significant movement of the Egyptian Pound (EGP) in March 2024. With this adjustment out of the picture, growth is expected to return to a more normalized pace.
Meanwhile, banks in Saudi Arabia are forecast to paint a much brighter picture. Analysts anticipate an impressive YoY earnings growth of 8. 2% for the quarter. This positive outlook is driven by several factors, including strong Net Interest Margins (NIMs) arising from rising interest rates. These higher rates are projected to effectively counterbalance the normalization of non-interest income and a potential increase in provisions.
The contrasting fortunes of the UAE and Saudi Arabian banking sectors highlight the ongoing economic disparities within the GCC region. The UAE, heavily reliant on its role as a trade and tourism hub, has been impacted by a slowdown in global trade and a correction in its real estate market. This has, in turn, translated into a cautious lending environment for banks.
On the other hand, Saudi Arabia, a major oil producer, has benefited from the recent surge in global energy prices. This windfall has bolstered economic activity and fueled loan growth for Saudi banks. Additionally, the ongoing government reforms aimed at diversifying the Saudi economy are expected to further strengthen the banking sector in the long run.
Looking ahead, the performance of the GCC banking sector will depend on various external factors beyond individual country specifics. Global economic conditions, particularly the trajectory of interest rates and oil prices, will continue to play a significant role. The success of ongoing economic diversification efforts in the region will also be a key determinant of future banking sector performance.