Dubai: First quarter UAE bank results announced so far broadly indicate soft growth in assets and profitability combined with a visible improvements in asset quality.
For the last 8 to 12 quarters UAE banks have been focusing on efforts to strengthen their balance sheets through tighter underwriting practices, deleveraging from risky asset classes and limiting exposure to high risk borrowers. Efforts to bring down operating costs and improving yields on lending are also widely seen helping a modest recovery in margins.
All three banks that have declared their first quarter results broadly confirm to these trends. Dubai Islamic Bank (DIB), the largest Islamic bank in the UAE by total assets reported a group net profit of Dh1.04 billion, up 4 per cent compared to Dh1 billion for the same period in 2016.
DIB’s key numbers point to resilient outlook. Net operating revenue for the first quarter increased to Dh1.80 billion, up 7 per cent compared with Dh1.69 billion for the same period in 2016. Net financing assets rose to Dh121.4 billion up by 6 per cent compared to Dh114.9 billion at the end of 2016.
The bank reported strong liquidity position with customer deposits at Dh137.2 billion at the close of the first quarter of this year compared to Dh122.3 billion at the end of 2016, up by 12 per cent. CASA [current and savings account] constituted 37 per cent of total deposit base. At the close of the quarter, financing to deposit ratio stood at 88 per cent.
“Liquidity continues to be a key factor in driving growth and the last quarter has once again witnessed DIB’s ability to generate and mobilise deposits as needed. Though pressure may continue on cost of funding, it is expected to be relatively muted in 2017,” said Dr Adnan Chilwan, Group Chief Executive Officer of Dubai Islamic Bank.
At the aggregate level, central bank statistics for the first two months of this year show banking sector liquidity in the country is improving, through largely driven by improvements in wholesale deposits by governments and government related entities (GREs).
Deposits in the banking sector rose by a solid 1.2 per cent (Dh19.5 billion) month on month in February, supporting the easing in liquidity conditions since end-2016. This monthly increase pushed the annual deposit growth rate to 7.5 per cent year on year last month, up from 6.2 per cent in January.
All segments of domestic deposits improved last month by Dh24.7 billion (1.8 per cent growth) including government, GRE and private deposits seeing a monthly increase. With monthly deposit growth outpacing credit growth in February, the gross loan-to-deposit (L-to-D) ratio moderated to 100.3 per cent from 101 per cent in January, lowest L-to-D ratio since June 2015.
In keeping with the trend of modest improvement in banking sector profits, Mashreq reported 2.7 per cent increase in the first quarter profits year on year to Dh546 million primarily due to a 15 per cent decrease in impairment allowance.
While the bank reported a decline in net interest income and net income from Islamic products at Dh852 million was down by 3.6 per cent compared to 2016, total non-interest income also decreased by 5.6 per cent year-on-year to reach Dh607 million.
Mashsreq’s non-performing loans (NPLs) increased marginally by Dh221 million in the quarter leading to a NPL to gross loans ratio of 3.3 per cent at the end of March 2017. Net allowances for impairment for the first quarter of 2017 were Dh311 million as compared to Dh425 million in the fourth quarter of 2016 and Dh366 million in the first quarter of 2016.
“The stabilisation in the business environment coupled with our sharp focus on asset quality has led to lower provisions for impairment, down 27 per cent from the previous quarter. We are well poised to take advantage of market opportunities, and will see better upside in profits if the operating environment remains stable,” said Mashreq’s CEO, Abdul Aziz Al Ghurair.