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SBU Name – Month Day, Year
Cover Slide Title
UAE Banking PulseQuarter 1, 2019
2
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
3
• 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-
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
4
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%
4
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
5
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
Source: Financial statements, Investor presentations, A&M analysis
1
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
1
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%
7
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
2
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%
Improved Stable Worsened
8
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
3
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
(%, Quarterly Annualized)
1.49 1.70 1.88 2.12 2.18
Q4 ’18Q3 ’18Q2 ’18Q1 ’18 Q1 ’19
Cost Of Funds
(%, Quarterly Annualized)
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
Source: Financial statements, Investor presentations, A&M analysis
9
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
3
Note: Some numbers might not add up due to rounding
Source: Financial statements, investor presentations, A&M analysis
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
Improved Stable Worsened
10
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
4
Note: Some numbers might not add up due to rounding
Source: Financial statements, investor presentations, A&M analysis
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%
Improved Stable Worsened
11
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
4
Note: Scaling and some numbers might not add up due to rounding
Source: Financial statements, investor presentations, A&M analysis
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
Improved Stable Worsened
12
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
5
Note: Scaling and some numbers might not add up due to rounding
Source: Financial statements, investor presentations, A&M analysis
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
(%, Quarterly Annualized)
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
Improved Stable Worsened
13
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
5
Note: Scaling and some numbers might not add up due to rounding
Source: Financial statements, investor presentations, A&M analysis
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
Improved Stable Worsened
14
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
6
Source: Financial statements, Investor presentations, A&M analysis
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
15
Non-Interest Income amount assured rise in Operating Income. Cost of
Funds and Risk continued to increase
7
Source: Financial statements, Investor presentations, A&M analysis
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
Improved Stable Worsened
16
Glossary
17
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
18
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