UAE Banking Sector Q3 earnings update
​Limited earnings growth on elevated credit costs and margin compression as expected...
- ​Credit costs continue to increase (+9.8% q/q and +25.5% y/y) as banks provide for the SME stress. Most banks (DIB, ENBD and NBAD mentioned in the earnings call) see credit quality deteriorate in the retail segment (corporate seems to be normal), especially in the personal loan space, which should keep loan loss provisioning elevated in the next few quarters. We think the SME stress is having knock-on effect on retail. Only FGB finds asset quality intact in both, retail and corporate, which is a function of its exposure and underwriting standards.
- Margin compression persists on increase in funding costs, which is not yet passed on to customers via re-pricing. Competition remains intense in the retail market affecting pricing, while corporate is showing some improvement in Q3.
- ​Forex and investment (AFS gains) income supported non-funded income, resulting in an increase in operating profit of +5.7% y/y and +1.0% q/q. Banks continue to keep tabs on cost amid weak revenue generation in a challenging operating environment.
- No surprises with only FGB and ADIB (2 out of the 15 banks we cover) reporting earnings growth q/q and y/y (ENBD and NBAD flat earnings), with RAKBANK having the weakest Q3 as we highlighted in our earnings preview.
Established in 2007, Arqaam Capital is a specialist emerging markets investment bank, bringing regional and international product offerings to the emerging markets. Arqaam Capital combines international best practice with expertise in the markets in which we operate. Our primary role is to provide financial intermediation and create investment opportunities for frontier and emerging markets investors looking to invest in their own markets and abroad, as well as international investors seeking opportunities in target frontier and emerging markets. Arqaam Capital is headquartered in the Dubai International Financial Centre (DIFC), with additional offices in Libya, Lebanon, Egypt, and South Africa.
Arqaam Capital's research platform provides the largest coverage footprint of MENA equities and one of the largest on the African continent with a total of 300 stocks under coverage. Arqaam Capital is ranked as one of the leading research providers in the region - a reflection of its broad coverage universe, its in-depth and high quality research, as well the compelling investment ideas that the team generates. The analysts closely analyze their sectors and issue in-depth company and sector research while the strategy team connects the micro with the macro, focusing on index analysis, macroeconomics and strategy research.
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