Dubai: The first half result of leading UAE banks showed macroeconomic headwinds continue to adversely impact asset growth, asset quality and profitability.
Despite the tough economic environment many leading banks have managed to record higher profits, largely by managing their costs and limiting non-performing loans by imposing tougher underwriting standards. Clearly, banks that have been able to limit overall costs and cost of risk (impairments) have been able to report profit growth.
Leading Dubai banks such as Emirates NBD (ENBD) and Dubai Islamic Bank (DIB) were two notable exceptions that bucked the trend and continued to deliver strong results supported by decline in costs, lower provisions, and improved margins.
ENBD reported a net profit of Dh3.9 billion for the first half of 2017, up 5 per cent year on year, largely driven by higher net interest income, lower expenses and lower provisions.
Net interest income improved 2 per cent year on year due to loan growth and helped by a recent improvement in margins. Net interest margin improved since the beginning of the year as loans reset at higher rates and funding costs improved as liquidity conditions eased.
“During 2017 we have seen margins widen 20 bps (basis points) as recent rate rises flowed through to loan pricing and funding costs improved as regional liquidity conditions eased,” said Shayne Nelson, Group Chief Executive Officer of Emirates NBD.
The operating performance was also supported by a control on expenses and sustained decline in provisions. The bank’s balance sheet continues to strengthen with further improvements in credit quality and capital, coupled with solid liquidity ratios.
Improvement
During the first half of 2017 the impaired loan ratio improved by 0.3 per cent to 6.1 per cent. The impairment charge during this period of Dh1.26 billion is 13 per cent lower than in the corresponding period in 2016.
Costs for the half year ended 30 June 2017 amounted to Dh2.25 billion, an improvement of 9 per cent over the previous year, helped by a containment in staff costs following cost control measures implemented in 2016.
“Expenses remain firmly under control and provide headroom to invest for future growth. We also delivered a further improvement in credit quality with the NPL ratio strengthening to 6.1 per cent and this, coupled with an increase in margins and lower costs, is a position we expect to hold for the remainder of 2017,” said Surya Subramanian, Group Chief Financial Officer.
Dubai Islamic Bank (DIB) continued to show strong resilience with the group net profit growing 7 per cent in the first half of 2017 to Dh2.14 billion compared to Dh2 billion for the same period last year.
In DIB’s case, cost control and improving credit quality supported profit gains. In the first half of the year, operating expenses remained nearly flat at Dh1.16 billion compared to Dh1.15 billion for the same period in 2016. Gross cost of credit risk reduced to 55 basis points (bps) compared to 75 bps for the same period in 2016.
Strong asset quality
The bank’s asset quality remained strong during the first half of 2017 with non- performing assets (NPA) ratio continuing its downward trajectory, improving to 3.6 per cent, compared to 3.9 per cent at the end of 2016.
While managing to keep strong asset quality, DIB reported robust asset growth across all core businesses during the first six months of 2017. Total assets stood at Dh193.1 billion, an increase of 10 per cent, compared to Dh174.9 billion at the end of 2016. Net financing assets rose to Dh125.4 billion up by 9 per cent, compared to Dh114.9 billion at the end of 2016.
“The 9 per cent growth in financing assets supported by the 16 per cent rise in customer deposits clearly showcases the franchise’s incredible ability to continue to generate liquidity at will while simultaneously deploying the same in quality earning assets,” Dr. Adnan Chilwan, Group CEO of DIB.
Mashreq and Emirates Islamic too made big strides in reining in provisions. Mashreq reported a net profit of Dh1.1 billion for the first half 2017, up 3 per cent compared to the first half of 2016. Net impairment allowances for the first half of 2017 were Dh652 million compared to Dh838 million in the first half of 2016. A significant decline of impairment allowance by 22.3 per cent year on year boosted the first half profits.
