Dubai: Significantly higher provision costs in the first six months of 2017 has impacted profit growth of a few leading banks. Broad trend indicates that despite proactive efforts, a creeping increase in non-performing loans continue to adversely impact asset quality and profitability of some banks.
Commercial Bank of Dubai’s (CBD) first half profits were lower by 31.6 per cent at Dh332.5 million for the first half of 2017 compared to Dh485.8 million for the same period last year mainly due to higher provisions and costs. Net impairment provisions of Dh531.5 million were set aside during the first half compared to Dh288.7 million for the same period previous year. Operating expenses were 7 per cent higher at Dh449.3 million for the first half of 2017 compared to Dh420.1 million for the same period last year.
Total assets were higher at Dh67.9 billion as at June 30, 2017, an increase of 10.6 per cent over the Dh61.4 billion reported in the first half of 2016. CBD’s loans and advances increased 14.1 per cent year on year to Dh46.3 billion in the first half of this year and was up 10.4 per cent compared to Dh42 billion at year-end 2016.
“Although net profit was impacted by higher impairment provisions as a result our prudent provisioning policy, the bank is well placed to continue growing in our target segments in the coming quarters,” said Dr Bernd van Linder, Chief Executive Officer.
Union National Bank (UNB) recorded a profit of Dh958 million for the first half of 2017, up by 4 per cent over same period of 2016. The profit for the second quarter of 2017 of Dh506 million was up by 12 per cent compared to the profit for the first quarter of the current year. The profit for the second quarter of 2017 was up 12 per cent to Dh506 million compared to the first quarter.
Operating income
The operating profit for the first half of 2017 was Dh1.23 billion up by seven per cent compared to the same period last year mainly due to an increase in operating income by eight per cent to Dh1.81 billion. The growth in operating income was driven by an increase in both net interest income and non-interest income.
The increase in net interest income was led by growth in the loan book partly offset by a reduction in net interest margin on account increase in funding cost in the first half 2017 over the corresponding period of 2016.
While the bank has been able to deliver strong operating performance amid challenging economic conditions and softening loan demand, higher impairment charges, clearly has been a drag on profits. Impairment charge for the first half of 2017 was Dh258 million, higher by 30 per cent compared to the same period last year.
ADCB reported a 2 per cent year-on-year decline in its net profit for the first half of 2017 primarily due to higher impairment charges and lower non-interest income. The bank’s profits reached Dh2.1 billion in the first six months. The figure puts net profit in the second quarter of 2017 at Dh1 billion, down 10 per cent compared to the Dh1.12 billion recorded in the second quarter of 2016.
Impairment costs in the first half of this year reached Dh814 million, up 16 per cent over the Dh703 million recorded in the same period last year. The bank booked impairments of Dh427.4 million in the second quarter, compared to Dh350.8 million in the prior-year period.