Dubai: The 2016 full year results of leading UAE banks showed profits and assets growth were under pressure from economic headwinds linked to persistent low oil prices and slowdown in global trade flows.
The overall asset quality continued to deteriorate with some respite from growth in non-performing loans (NPLs). Top three conventional banks such as Emirates NBD (ENBD), National Bank of Abu Dhabi (NBAD), First Gulf Bank (FGB) reported anaemic profit growth in low single digits, Abu Dhabi Commercial Bank reported a 16 per cent year on year decline in profits.
Amid the overall subdued trend in credit growth and profitability, banks continue to remain resilient to difficult operating environment resulting from prolonged low oil prices and a slowdown in the UAE’s economic growth from 4 per cent last year to a projected 2 per cent in 2016.
Dubai Islamic Bank (DIB) continued to buck the trend as it reported a 6 per cent increase in net profit, beating analysts’ expectations. The bank posted a net profit of Dh4.05 billion in 2016, compared with Dh3.839 million in 2015 as total income increased 14 per cent to be at Dh8.636 billion.
The bank’s NPL ratio continued to improve as it reported the NPL ratio at 3.9 per cent, compared to 5 per cent in 2015. The provision coverage ratio improved to 117 per cent, compared to 95 per cent in 2015.
Emirates NBD, reported Dh7.24 billion net profit for the full year 2016, up 2 per cent compared to the previous year. The operating performance was helped by recoveries from legacy impaired loans which offset lower non-interest income. Despite the challenging environment the bank’s total assets at Dh448 billion was up by 10 per cent from year-end 2015. Customer loans at Dh290.4 billion surged 7 per cent from end 2015 and customer deposits were up by 8 per cent at Dh310.8 billion compared to 2015.
“The Group’s liquidity position remained strong, bolstered by a stable and highly diversified deposit base and our ability to raise over Dh20 billion of term funding. Given the ongoing challenging environment, we will remain focused on controlling expenses and managing risks whilst ensuring that we continue to invest to support future growth,” said Group Chief Executive Officer, Shayne Nelson.
Provisions of Dh2.6 billion improved 23 per cent year on year as net cost of risk improved on the back of further write-backs and recoveries. Non-performing loan (NPL) ratio improved to 6.4 per cent and coverage ratio strengthened to 120.1 per cent during 2016. Advances to deposits ratio was 93.4 per cent. Net interest margins declined to 2.51 per cent as loan spreads did not keep pace with the higher cost of deposits and wholesale funding.
National Bank of Abu Dhabi (NBAD) reported net profits of Dh5.296 billion for financial year 2016, up 1.2 per cent year-on-year as strong underlying performance was partially offset by several macro headwinds, including volatility in financial and currency markets driven by political and economic uncertainties. Liquidity remained strong with loans-to-deposits ratio of 79 per cent, and capital ratios remained robust with a Tier-1 ratio of 16.9 per cent.
FGB reported a profit of Dh6.03 billion for the full year 2016, compared to Dh6.01 billion in 2015. The bank’s fourth quarter net profits at Dh1.53 billion was down 11 per cent year on year.
“Our strong set of results is testament to the success of the strategic actions we have implemented in order to navigate volatile global operating conditions. As a result of our focused efforts to safeguard strong fundamentals, our net interest margin held up well in the fourth quarter and our liquidity position is always optimised and maintained within regulatory requirements,” André Sayegh, chief executive officer of FGB,” said André Sayegh, chief executive officer of FGB.
The bank, which is being merged with NBAD maintained strong asset quality with non-performing loan ratio at a seven-year low of 2.3 per cent with a provision coverage of 121.1 per cent.
ADCB’s net profits were down 16 per cent year on year at Dh4.15 billion in 2016 from Dh4.9 billion in 2015. In the fourth quarter of the year the bank reported a net profit of at Dh1 billion, compared to Dh1.19 billion in the previous year.
Total assets reached Dh258 billion as at 31 December 2016, an increase of 13 per cent over 2015. Net loans and advances to customers were Dh158 billion, up eight per cent year-on-year, compared to a system-wide growth of six per cent. Consumer banking loans increased five per cent, while wholesale loans increased 11 per cent year-on-year with 94 four per cent of loans to customers within the UAE.
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Analysts say despite slowing economy, rising cost of funds and a gradual rise in loan impairments the outlook for the UAE banking system remains stable.
“In our view, the country’s banks will maintain stable credit profiles despite a slowing economy and subdued demand for credit caused by low oil prices, said Nitish Bhojnagarwala, Assistant Vice President — Analyst at Moody’s.
While the operating environment for banks is expected to soften in the context of slowing economic growth reduced public spending is expected to slow the demand for credit resulting in domestic credit growth to slow to around 5 per cent annually for 2016 and 2017, down from around 8 per cent for 2015 while asset quality is seen weakening modestly after a period of strong recovery.
Analysts expect downside risks to banks could stem from the sizeable and volatile real-estate sector and from concentrated exposures to large government related institutions. For the banking sector as a whole capital buffers are expected to improve further form internal capital generation, combined with subdued asset growth. Loan-loss reserves were a solid 94 per cent of problem loans as of June 2016.
The outlook is expected to remain challenging in relative terms as weaker economic growth will feed through to credit fundamentals. The end of the commodities boom has also increased the pressure banks’ asset quality and profitability indicators.