Dubai: National Bank of Fujairah (NBF) witnessed a spike in bad loans and provision in the first quarter of this year, but bank expects to see a gradual normalisation of non-performing loans (NPLs) over the next two to three quarters, Vince Cook, CEO of the bank told Gulf News in an interview.
The bank’s net impairment losses for the first quarter of 2016 were Dh72.6 million, up 78 per cent, year on year, compared to Dh38.8 million in the corresponding period of 2015 and Dh75.8 million in the fourth quarter 2015.
While the bank has been aware of the problems linked to the small and medium enterprises (SMEs) from the last quarter of 2014, the real surge in bad loans happened in November and December 2015.
“January was not so different from a typical month. But obviously we are dealing with the problems from the previous quarter. A lot of issues we were facing in the last quarter of the year were issues that couldn’t be fixed in a short span of time. That was clearly an aberration and it fell back sharply in by end January but not yet back to normal levels, but looks manageable,” said Cook.
SME portfolio
NBF reported relatively good performance in the first quarter of this year despite the stress from the SME portfolio. In the first quarter, the bank’s operating profit was up 18.5 per cent. Operating income experienced a growth of 14 per cent. Net interest income and net income from Islamic financing and investment activities grew by 9.2 per cent. Net fees and commission income grew by 17 per cent and foreign exchange and derivatives income marked a growth of 10.2 per cent compared to the corresponding period of 2015.
Operating profit in the first quarter was Dh223.1 million, up 18.5 per cent compared to Dh188.3 million in the corresponding period of 2015. “We have witnessed a significant growth in operating income with new streams of revenue, still growing very strongly. There was a need to provision the problem loans, but provisions are still at the manageable levels. We are still seeing strong growth in operating profit. We can see that continuing but the overall growth may not be similar to the giddy heights of 2013 and 2014,” said Cook.
The spike in provisions in the first quarter did not come as a surprise to NBF management. On the contrary, the bank has been witnessing build-up in pressure in some segments of the business last year and has been building up reserves to meet the challenges. To deal with the emerging risks, the bank had changed a number of credit parameters, particularly in some areas like the SME business where competition was high and banks were offering unsecured facilities of several millions to relatively new businesses.
“We started to adjust from early part of last year. That is helping us to deal with some of the issues in the market. That is not to suggest that we are not immune to the problems in the market, but we are in much better shape because we recognised the problems at a pretty early stage.
The results of the last couple of quarters reflected the problems faced by a number of banks in their SME portfolios. While some of them were hugely impacted and exited SME lending, others were forced to take huge provisions on their exposures.
