Dubai: Third quarter results reported by leading UAE banks point to a gradual slowdown in lending, profit growth and some signs of weakening credit quality.
While nine month figures show continued growth in earnings supported by both interest and non-interest income, a closer look at the quarterly performance point to the emerging challenges in the banking sector.
Emirates NBD (ENBD) reported a nine-month net profit of Dh5 billion up 27 per cent year on year, but the bank’s third quarter profits were up by a much more modest growth of 7 per cent year on year and a quarter on quarter growth of 2 per cent on second quarter.
National Bank of Abu Dhabi (NBAD) reported net profits of Dh1.32 billion in the third quarter of 2015, down 3 per cent year on year and 8 per cent sequentially. Net profits for the first nine months of 2015 were Dh4.19 billion, relatively flat compared to Dh4.2 billion reported in the same period in 2014.
Considering the current economic conditions, the bank said it will be cautious and prudent in its operations. “As we enter the final quarter of this year and look forward to 2016, I am confident that we will continue to generate solid growth and returns for our shareholders whilst also maintaining our position as one of the world’s safest banks,” said Alex Thursby, Group Chief Executive of NBAD.
Abu Dhabi based First Gulf Bank (FGB) reported a group net profit of Dh4.29 billion for the first nine months of 2015, a 4 per cent increase compared to the same period last year. For FGB, third quarter net profit growth was flat at Dh1.42 billion compared to Dh1.43 billion in the third quarter of 2014.
“FBG reported flat bottom-line in the third quarter of 2015, as fall in operating income was offset by lower provisions. Despite stable loan growth, the bank’s net interest income declined marginally due to lower net interest margins,” said Naveed Ahmed, Senior Manager, Research Group Global Investment House.
Dubai headquartered Mashreq’s nine-month profits were up by a modest 5.1 per cent at Dh1.8 billion. Bankers admit the operating environment is challenging and the industry needs to adapt to the new economic conditions.
“I believe that in these times of uncertainty in the global economy as well as the visible volatility in the markets, balancing the enterprise objectives of growth vs financial prudence is of paramount importance,” said AbdulAziz Al Ghurair, Mashreq’s CEO.
Results of some of the smaller banks showed deteriorating asset quality and a resurgence of higher impairment charges. Sharjah headquartered United Arab Bank (UAB) reported a net profit of Dh72 million for the first nine months of 2015, compared to Dh498 million for the same period of 2014. Net profit was impacted by higher provisioning taken during the quarter of Dh466 million following a significant increase in loan defaults in UAB’s higher risk commercial loan portfolio.
While lending declined by about 2 per cent year to date, the bank is expected to see further deleveraging in the fourth quarter. “We will be deleveraging from some of our higher risk assets over the course of the final quarter; we will continue to improve liquidity and continue to enhance our risk management,” said Paul Trowbridge, Chief Executive Officer.
The National Bank of Ras Al Khaimah (RAKBank) reported a meagre 1.5 per cent growth in profits for the first nine months of the year as the third quarter profits remained flat year on year. The bank’s provisions were up 65 per cent year on year to Dh70.9 million at the close of the first nine months. In the third quarter of this year, provisions climbed to 274.9 million compared to Dh166.68 million in the same quarter last year.
The trend has been broadly the same across the industry with a few exceptions. Abu Dhabi Commercial Bank (ADCB) reported an 18 per cent growth in both nine-month profits and third quarter profits year on year. The bank reported healthy growth in loans and deposits during the first three quarters.
We are focused on maintaining a conservative balance sheet and delivering strong returns, which is reflected in our Q3 results, with an industry leading return on equity of 21 per cent for the nine month period of 2015 while generating a healthy loan and deposit growth year on year, up 11 per cent and 7 per cent, respectively,” said Ala’a Eraiqat, Member of the Board and Chief Executive Officer of ADCB.
