Dubai: The UAE’s banking sector is well prepared for the global and regional economic challenges and is expected cope well with the headwinds from low oil prices, squeeze on liquidity and a potential growth slowdown, Shayne Nelson, Group Chief Executive officer of Emirates NBD told Gulf News in an Interview.
Emirates NBD and Emirates Islamic, the Islamic bank belonging to the group delivered strong results in 2015 despite many banks reporting decline in profit growth while facing challenges in asset quality, particularly in their small and medium enterprise (SME) portfolios, deposits and loan growth.
The bank reported net profit of Dh7.1 billion for the full year 2015, up 39 per cent compared to the previous year. Total income for the year grew by 5 per cent to Dh15.2 billion. Net interest income grew 8 per cent to Dh10.2 billion due to growth in assets and a lower cost of deposits.
The bank’s strong performance was supported by income growth, a modest increase in costs and lower impairment charges. “If you look at our impaired loans you can see while most other banks are witnessing a surge in bad loans, we are witnessing a decline in legacy bad debts, which was about $10 billion (Dh36.7 billion) at some stage,” said Nelson.
The bank benefited from some big ticket write backs last year, positively impacting its profits. “Of course, these are the results of our prudent provisioning policy in the past. If we had not provided for these, we would not have been getting these write backs. We will keep on working that part of the book and are really optimistic that a significant portion these will be recovered and some of these one offs coming from that portfolio is going to reflect positively on our results,” said Nelson.
Further growth
Despite a more challenging year for regional liquidity, the bank’s advances to deposits ratio improved to 94.2 per cent as a result of further growth in stable funding sources such as current account and savings account deposits (CASA) which accounts for 57 per cent of bank’s total deposits.
The bank has Dh9.1 billion debts/sukuk maturing this year. Nelson is confident of managing the bank’s liquidity to meet the loan demand and managing the maturity profile using its strong local deposit base supported by funds raised from international deposits.
“We raised $10.6 billion last year from the market. This is good enough to match our maturity profile. We have an ongoing private placement programme, which we could tap any time when we need to raise money. But we are not in any hurry to raise more funds,” Nelson.
Factbox: SMEs remain a cool business
It is no secret that a few UAE banks exited or reduced their exposure to small and medium enterprises (SME) portfolio because of a surge in non-performing loans (NPLs).
Late last year, the UAE Banks Federation estimated that the banking sector in the country could face NPLs in the range of Dh5 billion to Dh7 billion from SME exposures.
Despite the reported turbulence, for Emirates NBD’s SME, business remains as strong as ever. “For us it is cool business and we see no change there. In fact one of the things I tell my team is to look at the opportunities in adversity. SMEs to me are one of such an opportunity. They drive employment and GDP growth; these SMEs are the next big companies. So banks have an obligation to support them,” said Nelson.
Considering the changing economic environment he expects to see tightening of lending to SMEs. A lot of SMEs are involved in trade and many of them have imported goods in dollars. While the commodity prices have dropped where they were intending to export, currencies of many export destinations too have dropped resulting in a double whammy.
