Dubai: The UAE banking sector reported strong gains from improving asset quality, interest margins from repricing of loans and continuing improvement in operating costs in the third quarter of 2017.
According to the latest central bank data on system-wide credit, overall loan growth remained anaemic with total credit growth at 0.9 per cent year on year at the close of the third quarter of 2017. Gross credit growth remained lacklustre in September at just 0.1 per cent month on month as soft domestic loan growth 0.3 per cent year to date.
Despite the slowing credit growth, the third quarter data showed wide variations in loan growth and profitability of banks.
Some of the leading banks such as Emirates NBD and Dubai Islamic Bank (DIB), delivered a strong set of results credit growth several times the gross system-wide credit growth.
Emirates NBD’s loans increased by 5 per cent and deposits grew by 4 per cent during the first nine months of 2017. The bank’s net profits were up 15 per cent to Dh6.17 billion for the first nine months of 2017. For the third quarter the year, the bank reported a net profit of Dh2.27 billion, up 37 per cent compared to the third quarter of 2016.
Net interest income for the first nine months of the year improved 4 per cent year on year due to loan growth and helped by a sustained improvement in margins. The operating performance was also supported by lower expenses and an improved cost of risk. “Our margins have continued to improve throughout 2017, helped by rate rises and an improvement in funding costs,” said Group Chief Executive Officer, Shayne Nelson.
Robust net income margin
DIB was another bank that bucked the trend in credit growth and reported a nine-month net profit of Dh3.3 billion, up 10 per cent compared with Dh3.billion for the same period in 2016. The bank sustained profitability and growth on the back of robust net income margin and low operating expenses. For the third quarter of the year, the bank made Dh1.15 billion net profits compared with a net profit of Dh1 billion in the corresponding period of 2016. DIB’s net financing assets rose to Dh131.3 billion, up by 14 per cent, compared to Dh115 billion at the end of 2016.
Commercial Bank of Dubai (CBD) reported strong credit growth, though the bank could not translate this into profits as provisions and higher costs impacted the bottom lines. Loans and advances at Dh47.5 billion registered an increase of 14.9 per cent at the close of the third quarter of 2017 compared to Dh41.3 billion in the same period last year and a 13.1 per cent increase compared to year-end 2016.
“CBD has delivered solid top-line growth. Loan growth was particularly strong in the bank’s core segments as net loans increased by 13 per cent in 2017. Operating profits rose by almost 15 per cent on the back of 11 per cent increase in revenues,” said Dr. Bernd van Linder, Chief Executive Officer of CBD.
Operating income increased by 10.9 per cent to Dh1.98 billion, mainly owing to an 8.4 per cent increase in net interest income to Dh1.35 billion compared to Dh1.24 billion reported in the same period last year. CBD reported a nine-month net profit of Dh665 million, 5.2 per cent lower compared to Dh701 million for the same period last year. The bank attributed the decline in net profits to prudent provisioning and higher general provisions as a result of loan growth.
Muted growth
Mashreq, reported a 12 per cent increase in its net profits for the first nine months of 2017 to Dh1.7 billion, as impairment allowances for the period were down by 30 per cent year on year and operating expenses lower by nearly 2 per cent on the back of effective cost management.
“It has been a period of muted growth for the UAE banking system with the banking sector Gross Credit growing by only 0.3 per cent as of August 2017,” said Mashreq’s CEO, Abdul Aziz Al Ghurair.
“However, at Mashreq we have been successful in increasing our loan book by 6 per cent year to date. With a focus on cost management that has seen us reduce operating expenses by 1.7 per cent year on year and a strong 30 per cent decline in credit costs,” said Mashreq’s CEO, Abdul Aziz Al Ghurair.
Overall risk metrics of the banking sector showed mixed performance with declines in both coverage ratio and cost of risk. The decrease in cost of risk was driven by a decrease in provisioning rather than an increase in the loans portfolio.
The banks also benefited from US interest rate increases, owing to the peg between the UAE local currency, the dirham, and the US dollar, which lifted the benchmark rate (Eibor) for domestic lending. This generated higher interest income. This increase offset the pressure on interest income from sluggish lending volumes to some extent.
