The UAE banks boosted their profits by 24 per cent in 2011, surpassing profit levels since 2005, a leading global management-consulting firm said on Tuesday.
Bank revenues also recorded a six per cent surge in 2011, the Boston Consulting Group, or BCG, said.
Banks in the UAE showed such a better than expected performance despite a four per cent increase in their loan loss provisions in 2011 while their operating expenses rose by 12 per cent, BCG said in its latest study.
The new study, part of BCG’s annual banking performance indices, is based on 2011 annual results as reported by the banks in the first quarter of 2012.
Dr Reinhold Leichtfuss, senior partner and managing director in BCG’s Dubai office, said compared to 2010, the profitability of corporate banking increased by 13 per cent in 2011, while revenues grew by seven per cent. Retail banking profits saw a more modest gain of five per cent, while retail revenues actually declined by two per cent.
Sultan bin Nasser Al Suwaidi, UAE Central Bank Governor, recently said the UAE bank lending growth rate is “reasonable” and projects in the country will not suffer from funding shortages due to impending problems banks in the eurozone face in the backdrop of the debt crisis.
Al Suwaidi said although banking industry across the world is to be impacted by the new capital adequacy requirements under the Basel III and other new international banking regulations, banks in the UAE are in comfortable position.
UAE banks boast one of the highest capital adequacy ratios in the world. According to Standard & Poor’s, the regulatory capital adequacy ratios the UAE are “in the high teens and in some cases up to 20 per cent” which are already above the minimum set in the Basel III proposals.
In the Middle East, the banking industry experienced a revenue growth of seven per cent in 2011, after revenues had stagnated the year before. “Profits also increased significantly in 2011 and reached the highest level since the all-time high of 2007. Loan loss provisions, or LLPs, fell by two per cent although a number of banks that were previously not affected and had relatively low LLPs needed to make more provisions,” the study noted.
Leichtfuss said performance of Middle East banks in 2011 testifies to the strength of the GCC economies and banking systems.
“Although the 2011 upturn has been quite strong for banks in Saudi Arabia and across the GCC, returning to pre-crisis levels of growth in the foreseeable future is unlikely. This is even more so given that the region’s regulatory bodies are becoming more cautious with regards to lending and fee policies of banks. Therefore, the challenge of improving competitiveness in an environment of slower growth remains.”
While banks in Saudi Arabia, the UAE, Kuwait and Bahrain had healthy revenue growth rates between four per cent and eight per cent in 2011, the banking systems in Oman and Qatar grew revenues by 11 per cent and 22 per cent, respectively. In addition, banks in all countries, except in Kuwait and Oman, achieved double-digit aggregate profit growth rates.
In 2011, retail banking revenues in the GCC, which had remained rather flat during the last few years, experienced an uptick of some three per cent, largely due to an increase in Saudi Arabia and supported by strong growth in Oman and Qatar of around 20 per cent. “In contrast, retail revenues in the UAE and Bahrain dropped by two per cent and seven per cent respectively.”
GCC retail profits, which had been declining in the previous years, saw a significant uptick of 11 percent overall and positive growth rates in all countries.
BCG said the corporate banking segment reached top index levels both in revenues and in profits in 2011.
The growth was witnessed across all GCC countries with corporate banking profits rebounding particularly well in Saudi Arabia.
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