Dubai: Bankers expect the overall profitability to be moderate this year while top-line growth is expected to be significantly lower, while factors such as improved recoveries, stronger collateral values and lower provisions could continue to boost their bottom lines.
“I think the net-profit growth will be within 10 per cent this year for the banking system. We should also look at the sources of additional revenue of banks. Is it from top-line growth or reversal of provisions, or less provisions? We always look at profit growth from top-line growth, but there could be some growth coming from less provisioning and some from reversal of provisioning,” said Abdul Aziz Al Ghurair, CEO of Mashreq.
Non-performing loans (NPLs) and provision figures for the first two quarters confirm this argument. For Emirates NBD (ENBD), during the first half, the impaired loan ratio improved to 7.4 per cent from 7.9 per cent at the end of 2014. The impairment charge in the first half of 2015 of Dh1.98 billion is 24 per cent lower than in corresponding period of 2014 as the cost of risk starts to normalise in 2015. These provisions, along with a healthy level of write-backs and recoveries, helped boost the coverage ratio to 109.8 per cent.
National Bank of Abu Dhabi’s (NBAD) NPLs decreased by Dh110 million in the second quarter to Dh5.84 billion and the NPL ratio stood at 2.6 per cent of the loan book. Total provisions represented 112 per cent of non-performing loans at the close of the second quarter.
In the first half of the year, charges for impairment allowances on loans and advances, net of recoveries amounted to Dh333 million, down 21 per cent compared to Dh422 million in the same period last year. NPL and provision coverage ratios were 3 per cent and 138.6 per cent respectively. As at 30 June 2015, the bank’s collective impairment allowance balance was Dh3.034 billion, 2.09 per cent of credit risk weighted assets.
FGB maintained healthy asset quality metrics in line with December 2014 levels, with NPL ratio at 2.5 per cent and provision coverage at 126.1 per cent. Loan impairment charges stood at Dh359 million, 18 per cent lower in comparison with the same period last year.
Asset quality trends of Union National Bank (UNB) have shown consistent improvement with the ratio of non-performing loans and advances to gross loans and advances, improving by 40 basis points to 3.4 per cent as at June 30, 2015. The loan loss coverage further improved to 107.5 per cent in the first half of this year against 97.2 per cent at year end 2014. The impairment charge on financial assets for the first half of 2015 was Dh186 million compared to Dh91 million in the same period last year.
For Mashreq, NPLs remained stable at Dh2.8 billion in June 2015, leading to NPLs to gross loans ratio of 3.7 per cent at the end of June 2015. Net allowances for impairment for the first half of 2015 was Dh423.9 million as compared to Dh555.8 million in the first half of 2014. Total provisions for loans and advances reached Dh3.7 billion, constituting 138.4 per cent coverage for NPLs as on June 30, 2015.
Commercial Bank of Dubai booked Dh154 million in the first half of 2015 as impairment charges net of recoveries. Decline in NPL coupled with an increase in loan book resulted in drop of NPL to gross loan ratio from 9.2 per cent as at end of December 2014 to 6.4 per cent as of June 30, 2015. CBD’s impaired loan coverage ratio improved from 93.7 per cent as at the year-end 2014 to 101.4 per cent at the close of the first half of 2015.
Dubai Islamic Bank’s impairment losses declined to Dh276 million in the first half of this year compared to Dh355 million for the same period last year. While the bank’s NPLs declined on a consistent basis, the NPL ratio improved to 6.2 per cent, compared to 8 per cent at year end 2014. Impaired financing ratio also improved at 5 per cent from 6.5 per cent at end of 2014, and provision coverage ratio improved to 86 per cent compared to 78 per cent at end of 2014.
