Dubai: A decline in the rate of growth of non-performing loans and loan loss provisions combined with improved liquidity and surge in lending has helped most UAE banks to improve their profitability during the first 9 months of the year.
The UAE’s banking sector loan growth which languished in lower single digits during the last four years has picked up in the first three quarters of this year. Loan growth for the full year is projected to rise from 2.6 per cent in 2012 to 7.5 per cent in 2013.
Emirates NBD reported a net profit of Dh2.6 billion for the nine months ended September 30, 2013, up 34 per cent compared with Dh1.9 billion in the same period of 2012. For the third quarter of the year, net income rose to Dh775.09 million from Dh640.09 million. Net interest income rose 18 per cent quarter on quarter and 30 per cent year on year helped by increased volumes in higher yielding retail products, declining Emirate Interbank Offered Rate (EIBOR), cheaper bank borrowings and more efficient capital structure.
“ENBD reported a robust growth in bottom-line mainly due to increase in net interest income, fee income and one-off gains from disposal of 32.6 per cent stake in Union Properties during the period; the acquisition of the Egyptian subsidiary in the second quarter of 2013 also had its impact,” said Naveed Ahmad, Manager, Research Group, Global Investment House.
Stronger asset growth and improvement in core banking incomes were evident in the third quarter financials of most banks as some banks reported decline in net incomes due to lower investment income.
National Bank of Abu Dhabi’s (NBAD), third quarter net profit fell 8 per cent on year to Dh1.04 billion, although the net income for the first nine months this year rose 13.8 per cent on the year to Dh3.66 billion. The bank’s revenue in the third quarter fell 2.5 per cent on year as stronger fee and net interest income was offset by lower net investment gains and other operating income.
Abu Dhabi Commercial Bank (ADCB) reported a 47 per cent rise in third quarter profit. The bank cited lower bad loan provisions as the main factor. Analysts said many UAE banks are enjoying strong profit growth this year as losses related to the property market crash of 2008-2010 seem past its peak.
Clearly, the recovery of asset values is also boosting the liquidity of banks. “The real estate market has recovered significantly, although oversupply still hang over segments of Dubai’s housing market,” Garbis Iradian, deputy director, Africa and the Middle East at the Institute of International Finance (IIF), said in a recent interview.
For many banks, loan loss provisions were seen declining in the third quarter. ADCB’s impairment allowances were 42 per cent lower in the third quarter at Dh308 million compared to Dh529 million in the third quarter last year. At the close of the third quarter, NBAD’s NPLs were about 3.32 per cent of the loan book, which the banks said were in line with its expectations. Total provisions represented 97.6 per cent of non-performing loans. “We believe, the asset quality of NBAD is one of the best among the banks in the UAE,” said Tariq Qaqish. Head of Asset Management at Dubai-based Al Mal Capital.
Emirates NBD reported a sharp increase in its third quarter provisions. The bank’s impairment provisions jumped 50 per cent from a year ago to Dh1.52 billion. Provisions now cover 54.8 per cent of bad loans compared with 48 per cent a year ago and the bank’s full-year target of 55 per cent to 60 per cent. “Conservative provisioning in line with guidance for the year which resulted in increasing the coverage ratio by over 2 per cent to 54.8 per cent,” said Surya Subramanian, Emirates NBD’s Chief Financial Officer.
While some of the banks’ balance sheets are more exposed to bad debts, the overall coverage is more than 93 per cent of the non-performing loans, the loans to deposit ratio has been brought down to 90 per cent from more than 130 per cent in 2009.
