Higher impairments squeeze Abu Dhabi lenders

Dubai: Performance of leading Abu Dhabi based banks in the third quarter were clouded by the relatively higher cost of funds and increased delinquencies.

National Bank of Abu Dhabi (NBAD) reported net profits of Dh1.32 billion for the third quarter of this year, flat year-over-year and down 4 per cent sequentially. During the period, strong underlying growth trends and solid investment income were offset by a seasonal slowdown and ongoing challenging market conditions. For first nine months of the year, net profits were down 5 per cent due to lower investment gains and higher impairment charges, despite growth in strategic businesses and overall stronger operating profits.

Analysts attributed flat earnings over the year higher loan loss charges. NPL formation increased in its retail segment, whilst SME/commercial credit quality remains challenging. “Growth remains subdued as balance sheet re-engineering continues, while deposit growth was entirely driven by its international operations during the quarter, making up for the government deposit outflow,” Arqaam Capital wrote in a note.

Abu Dhabi Commercial Bank (ADCB) missed analysts’ forecasts, after posting a 17 per cent fall in third-quarter profit due to higher impairments and lower interest income. Three analysts polled by Reuters had on average forecast a net profit for the quarter of Dh1.10 billion. The bank made a net profit attributable to shareholders of Dh999.1 in the third quarter compared to Dh1.2 billion in the same period last year.

“Our bottom line was impacted by higher impairment allowances reflecting the current market conditions, while our asset quality metrics remain healthy with a non performing loan ratio of 2.6 per cent and provision coverage ratio of 133.1 per cent” as of September 30, Deepak Khullar, group chief financial officer, said in the statement.

Weaker earnings

Union National Bank posted a 15 per cent drop in third-quarter net profit. It was the sixth successive quarter of weaker earnings. The bank reported a net profit of Dh410 million the third quarter compared to Dh483 million in the same period a year ago.

“UNB beat our expectations on lower than expected credit costs but margins continue to decline [47 bps] year on year to 2.64 per cent during the 9-month period) due to higher deposit costs and elevated delinquencies in its SME portfolio, ”Arqaam Capital said in a note.

Abu Dhabi Islamic Bank (ADIB) reported Dh508.9million in net profit for the third quarter of this year, inching up 1.1 per cent over the Dh503 million reported in the same period last year. FGB reported a nine-month net profit of Dh4.5 billion, up 5 per cent compared to the same period last year. In the third quarter group net profit grew 31 per cent to Dh1.86 billion with revenues up 28 per cent to Dh2.81 billion. While the banks continue to maintain profits at same level as last year, despite the challenging environment, rising provisions have significantly impacted profit growth.