Dubai: In addition to good loan growth and loan yields, a significant reduction in loan-loss provisions helped UAE banks deliver a stronger set of results for 2018. Mashreq’s impairment charges declined significantly, falling 17.3 per cent year-on-year, while non-interest income accounted for 38.7 per cent of total income.
The ratio of non-performing loans to gross loans rose slightly to 3.1 per cent at the end of December 2018. Total provisions for loans and advances stood at Dh3.6 billion, constituting a coverage for non-performing loans of 137.2 per cent.
“Improved risk management helped us reduce our impairment allowance by 17.3 per cent year-on-year and what also helps is our strong liquidity and capital position, which enables us to seek and capitalise on future growth opportunities,” said Abdul Aziz Al Ghurair, Mashreq’s CEO.
Emirates NBD’s net impairment charge of Dh1.74 billion is 22 per cent lower than in 2017, helped by recoveries from legacy loans. This net provision includes Dh1.63 million of write-backs and recoveries, which together helped boost the coverage ratio to 127.3 per cent. On lower provisions, bank’s cost of risk improved to 47 basis points (bps) in 2018 from 65bps in 2017.
Emirates NBD’s strong earnings last year were largely driven by net interest margin expansion and asset growth.
“ENBD delivered a solid set of results with earnings growth of 20 per cent during 2018 and 10 per cent in the fourth quarter translating into a return on equity of 20.3 per cent compared to 18.7 per cent in 2017,” Jaap Meijer, director of Research at Arqaam Capital, said in a recent note.
CBD too reported a strong improvement in asset quality in 2018, with the non-performing loans (NPL) ratio decreasing significantly from 8.7 per cent to 6.2 per cent at the end of 2017, with both ratios now calculated under International Financial Reporting Standards (IFRS) 9. The bank has set aside Dh704 million in additional net impairment provisions for 2018, a figure lower that the Dh740 million set aside in the prior year.
As of December 31, 2018, the total expected loss (ECL) allowances amounted to Dh3.11 billion.
2019 to be challenging
Analysts expect 2019 to be challenging for many banks to maintain their profitability. However, some of the leading banks already have either restructured their loan books or are in the process of doing so to keep their balance sheets strong and keep impairments under control.