Dubai: The full-year results of UAE banks are a mixed bag, with some reporting an increase in profitability, some a decline in profitability and others in the red — something that points to the different impact the challenging economic environment has had on bank balance sheets.
Analysts say the results are a reflection of challenges in both domestic and global economic environments that have led to rising costs, shrinking margins and higher provisions,
Notable exceptions to the overall declining trend were large lenders such as Emirates NBD, First Gulf Bank (FGB) and Abu Dhabi Commercial Bank (ADCB).
Emirates NBD reported a 39 per cent surge in full-year net profit to Dh7.1 billion, compared to the previous year. The bank’s fourth quarter net profit stood at Dh2.13 billion, up 74 per cent year-on-year and 28 per cent quarter-on-quarter.
“Our prudent balance sheet management and strong ability to attract and retain both retail and corporate deposits have enabled us to improve the bank’s liquidity position despite a challenging year for regional liquidity,” Shayne Nelson, Group Chief Executive Officer, said.
The strong performance was helped by income growth and a lower impairment charge.
Total income for the year ended December 31, 2015 stood at Dh15.22 billion, up 5 per cent compared with Dh14.44 billion in 2014.
“Net interest margin (NIM) was flat on [a] year-on-year basis. However, [the bank] witnessed a 7 basis point quarter-on-quarter improvement as treasury was able to profitably deploy excess liquidity at attractive yields,” said Naveed Ahmed, Senior Manager, Research Group Global Investment House.
“This, coupled with a widening in deposit spreads, more than offset the impact of rising Eibor [Emirates Interbank offered rates] rates on loan spreads,”
Abu Dhabi Commercial Bank (ADCB) reported a 2015 net profit of Dh4.92 billion, up 22 per cent on 2014.
Total loans at the bank stood at Dh53.68 billion at the end of 2015, up 9 per cent on the previous year. The bank reported a net profit attributable to shareholders of Dh1.19 billion in the fourth quarter, compared to Dh1.02 billion in the corresponding period the previous year.
Earnings were boosted by a 7 per cent year-on-year increase in quarterly operating income to Dh2.01 billion, while the amount the bank set aside to cover bad loans was 28 per cent lower than the fourth quarter of 2014.
Among the big four, National Bank of Abu Dhabi (NBAD) reported a decline in profits. The bank reported a full-year net profit of Dh5.23 billion for 2015, down 6 per cent compared to 2014. In the fourth quarter of 2015, net profit was down 25 per cent to Dh1.03 billion year-on-year and 22 per cent quarter-on-quarter.
The bank’s total assets were up 8.1 per cent year-on-year to stand at Dh407 billion at the end of 2015. Net loans and advances for the year were up 6 per cent year-on-year to Dh206 billion, but down 3 per cent sequentially in the fourth quarter.
On the liability front, customer accounts and other deposits stood at Dh234 billion at the end of 2015. Deposits were flat sequentially and down 4 per cent year-on-year after a decline in government deposits.
NBAD’s net impairment charges in 2015 were Dh943 million, up 8.6 per cent year-on-year. Non-performing loans fell Dh328 million to Dh5.83 billion in 2015. As of 31 December 2015, the bank’s NPL ratio stood at 2.76 per cent of the loan book.
Going forward, analysts expect lower earnings growth and higher credit losses for UAE banks due to the sharp decline in oil prices, resulting in weakened deposit portfolios, tighter liquidity and higher interest rates.
Standard & Poor’s expects a slowdown in credit growth and continued weaker deposit growth, with a renewed but manageable deterioration in asset quality.
All of these factors combined should result in negative earnings growth for the banks in 2016 and a lacklustre performance in 2017.
“We are likely to see a gradual but longer deterioration in operating conditions for banks over the next several quarters or years. We believe the uncertainty about how long oil prices will remain weak will force businesses and government to adopt a conservative stance, which will weaken spending for infrastructure and private-sector investments, and rein in bank lending,” said Standard & Poor’s credit analyst Timucin Engin.
