Abu Dhabi: Union National Bank (UNB) reported on Monday Dh410 million in profits for the third quarter of 2016, marking a 15 per cent decline for the Abu Dhabi-based bank from the Dh483 million recorded in the same quarter in 2015.
The results put profits for the first nine months of this year at Dh1.3 billion — down 20 per cent from the Dh1.67 billion recorded in the first nine months of 2015.
The profits in the third quarter are marginally lower than the analyst consensuses of Dh419 million. They also mark a fifth consecutive quarter of lower year-on-year earnings as the bank continues to grapple with tighter liquidity and lower government spending on the back of lower oil prices.
Operating income recorded a six per cent year-on-year decline in the third quarter, falling to Dh902 million. The bank’s costs recorded an increase, with operating expenses up seven per cent over the same quarter in 2015 at Dh279 million.
In its management report, UNB said both operating income and operating profit were negatively impacted “mainly due to higher cost of term deposits at the back on tighter liquidity conditions in the market.”
Vijay Harpalani, fund manager at Al Mal Capital, said the key takeaways from the financial results were the spike in funding costs, the increase in operating costs, and the substantial increase in impairments on a sequential basis.
Impairment charges in the third quarter of 2016 were Dh192 million — a four per cent improvement year-on-year but almost a 70 per cent hike compared to the second quarter 2016 impairments of Dh113.5 million.
“Quarterly earnings have been trending down year-on-year largely due to base effect, higher funding cost, and the fact that loan impairment cycle started in the second half of 2015. The two results reported today [from UNB and Emirates NBD] so far suggest tighter liquidity conditions, lower fee income, and sequential increase in impairment charges,” Harpalani said.
Net interest income in the first nine months of the year dropped 14 per cent year-on-year to Dh1.9 billion. The bank attributed that to “the drop in net interest margins by 47 bps to 2.64 per cent on account of higher costs of deposits as [well as] the elevated delinquencies witnessed in the SME (small and medium enterprises) portfolio.”
The SME sector has lately created increasing challenges for banks, as the tougher operating environment caused a rise in non-performing loans, especially from SMEs.
Customer deposits by the end of the third quarter were marginally higher, reaching Dh74.8 billion — up two per cent compared to the same time in 2015. Loans and advances also rose seven per cent to Dh73.6 billion.