Islamic Finance 

UAE banking sector tops in GCC with H1 assets surging to Dh2.7t

| 13 September, 2018

The UAE banking sector, currently undergoing a new cycle of consolidation, continues to surpass GCC peers in terms of total assets that had surged two per cent to Dh2.7 trillion ($748 billion) in the first half.

The Saudi banking sector came second with total assets valued at $617 billion followed by Kuwait with $215 billion, Bahrain with $188 billion and Oman with $87 billion. Thanks to banking sector consolidation, the First Abu Dhabi Bank (FAB), which came into being following the merger of National Bank of Abu Dhabi and First Gulf Bank, topped the Gulf banks with $188 billion worth of assets by the end of the first half.

The GCC bank with the second largest asset was Saudi National Commercial Bank with $121 billion, followed by National Bank of Kuwait with $90 billion and Bahrain's Ahli United Bank with $34 billion and Bank Muscat with $30 billion.

The market cap of Saudi National Commercial Bank hit $38.9 billion during the first six months, followed by FAB at $36 billion, the National Bank of Kuwait at $15.2 billion, Bahrain Ahli United Bank at $4.8 billion and Bank Muscat at $2.9 billion. Despite the regional economic headwinds, the UAE banking sector has been remaining resilient, with robust capital ratios, liquidity buffers, profitability, and stable sources of funding. The UAE Central Bank's Financial Stability Report for 2017 showed that macroeconomic and financial-market conditions remained stable in the UAE while the global and domestic economic growth and outlook improved during the year. According to the Central Bank, the UAE banking sector remained well capitalised, with solid liquidity buffers, stable funding, and improved profitability.

Moody's analysts expect the UAE's banking sector to remain largely resilient to oil price volatility and its impact on government finances and economic growth. They believe real estate and government-related entity (GRE) exposure are the main risks to banking asset quality, but macro-prudential regulations have largely cooled real estate speculative activity and will cap GRE exposure.

Analysts said new regulatory measures in the real-estate sector had reduced the scope for speculation-induced asset bubbles, while new lending regulations include caps on banks' exposure to local governments and to government-related commercial entities. Rating agencies and analysts believe the fourth round of consolidation in the UAE banking sector, which is currently under way, would be credit positive for the banking sector and serve to further consolidate the over-crowded financial system.

The commencement of three-way exploratory talks involving Abu Dhabi Commercial Bank (ADCB), Union National Bank (UNB) and Al Hilal Bank, a year after the merger of the National Bank of Abu Dhabi and First Gulf Bank would create another financial powerhouse with increased pricing power ensuing reduced pressure on funding cost. Such an entity will have increased ability to meet sizeable investment requirement, analysts at Moody's said.

Once the merger takes place, the combined entity will have assets of around Dh415 billion, closer to the assets of banking giant FAB that came into being last year. -

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