Dubai: UAE banks in general have reported resilient earnings in the third quarter. Earnings benefited from an improvement in credit cost, as well as modest loan growth. Margins were slightly compressed year-on-year, but have improved since the start of this year, thanks to two rate hikes in 2017. Banks continue to put a lid on cost growth, further supporting profitability.

Broadly, leading Dubai banks reported relatively better balance sheet growth than Abu Dhabi banks. Analysts expect earnings to further improve in the fourth quarter supported by increased credit appetite, [a] consistent decline in credit costs and the June rate hike.

First Abu Dhabi Bank (FAB) the UAE’s largest bank, has reported nine-month 2017 group Net Profit of Dh8.09 billion, down 4 per cent year-on-year, or up 2 per cent when excluding one-off gains on sale of investment properties. In the third quarter of 2017, Group Net Compared to the third quarter of 2016, Group Net Profit was down 18 per cent, or only 4 per cent lower when excluding one-off gains on sale of investment properties.

Islamic financing income

The bank reported a 2 per cent year to date decline in loans and advances and a 3 per cent decline in the third quarter compared to the same period in 2016.

Abu Dhabi Commercial Bank (ADCB) posted a net profit of Dh3.206 billion for the nine-month period ended September 31, 2017, up two per cent year on year.

For the third quarter of the year the bank reported a net profit of Dh1.092 billion, up nine per cent year on year. Total net interest income and Islamic financing income of Dh4.983 billion was up eight per cent, while the operating income of Dh6.585 billion was up four per cent.

The Abu Dhabi Islamic Bank (ADIB) Group with net profit growth of 13 per cent year-on-year to Dh1.69 billion and up 10.8 per cent in the third quarter of 2017 from 563.9 million reported in the third quarter of 2016. Given the uncertainties in the macroeconomic environment, ADIB has maintained its conservative approach on credit extension and capital management. This led to a year-on-year decrease of 2.3 per cent in customer financing assets to Dh76.8 billion at the end of 30 September 2017.

Lingering credit quality issues

Union National Bank reported flat profit growth in the third quarter at Dh410 million and a modest growth of 3 per cent to Dh1.37 billion in for the 9-month period. Sluggish credit growth and lingering credit quality issues particularly in the retail and small business portfolios are hurting its profits.

Analysts say improvements in country’s macro-environment is helping liquidity conditions, credit quality and lending appetite. Weaker credit growth so far in 2017 reflects slower economic growth and business activity in response to constrained public spending, combined with a technical reduction in the system balance sheet following the merger between First Gulf Bank and National Bank of Abu Dhabi, concluded in March 2017 to create FAB.

Rating agency Moody’s expects banking sector profitability to remain strong, Thinner margins are expected to be balanced by lower operating expenses and stabilising provision charges. Loan performance is expected to soften modestly next year following sluggish economic growth this year.

“We expect problem loans to rise modestly over the next 12 to 18 months, as weaker economic growth and constrained public-sector spending in 2017 pressure the finances of borrowers. Nonperforming loans (NPLs) will increase to 5.5 per cent to 6 per cent of gross loans by end 2018, from 5.3 per cent at June 2017 (5 per cent at December 2016),” said Mik Kabeya, an analyst at Moody’s.