Dubai: Initial indications from the second quarter bank results confirm the widely held view among banking sector analysts and professionals that the slowing business environment in the country is impacting key banking sector indicators such as profitability, liquidity, credit growth and credit quality.
Amid tightening liquidity conditions and subdued credit offtake, banks have been maintaining strong capital and liquidity ratios while higher loan loss provisions are impacting profitability.
Profitability is further impacted by declining net interest margins (NIMs). Historically, the UAE had very low deposit rates which boosted the NIMs. With slowing credit growth and a rise in US rates, NIMs of the UAE banks are likely to face further pressure.
Analysts say NIMs for the sector is expected to remain compressed in the context of increase in deposit rates while competitive pressures in the market and slowing loan demand is holding back lending rates.
The broad sector-wide trend is evident in the few results have been announce so far.
Union National Bank (UNB) on Thursday reported net profit of Dh922 million for the first half of 2016 down by 22 per cent year-on-year.
Loans and advances were up by 4 per cent year-on-year to Dh70.1 billion as at June 30, 2016 and were up by 2 per cent compared to the prior year end. The group’s consolidated total assets of Dh102.2 billion as at June 30, 2016, slightly lower compared to the corresponding period of 2015. Customers’ deposits remained broadly unchanged at Dh73.3 billion as at 30 June 2016, compared to the corresponding period in the previous year.
The bank said its cautious approach through tighter underwriting standards and selective booking of quality assets led to a more moderate growth in loans and advances impacting revenues.
The tighter liquidity environment has led to a higher cost of deposits with the net interest income being adversely impacted by 15 per cent to Dh1.25 billion in the first half of 2016. As a result, the net interest margin has reduced by 52 bps to 2.64 per cent in the first half.
“Given the generally uncertain global economic outlook, the UNB Group maintained its strategy to selectively pursue growth focusing on good quality assets while managing the downside risks,” said Mohammad Nasr Abdeen, Chief Executive Officer of UNB.
Abu Dhabi Islamic Bank (ADIB) reported a net profit of Dh989.5 million, for the first half of 2016 up 3.8 per cent compared to the same period last year. The group net profit for the second quarter of 2016 increased by 5.3 per cent to Dh507.5 million.
Credit provisions and impairments for the first half increased by 19.2 per cent to Dh450.1 million. For the second quarter of the year, provisions and impairments increased by 8.3 per cent quarter on quarter to Dh234. Customer deposits increased 9.3 per cent to Dh97.4 billion, while net customer financing grew by 6.9 per cent to Dh79.7 billion. The bank took an additional Dh253.1 million in total credit provisions to improve non-performing coverage ratio to 94.1 per cent of the total non-performing portfolio.
Commercial Bank of Dubai (CBD) reported 20.3 per cent lower net profits for the first half of 2016 at Dh485.8 million compared to Dh609.8 million in the same period last year.
The bank recorded loans and advances of Dh40.6 billion as of June 30, 2016, an increase of 6.9 per cent over Dh37.9 billion as of June 30, 2015 and 4.1 per cent higher compared to the Dh39 billion as at end of 2015.
Customer deposits increased by 15.9 per cent to Dh41.3 billion as of June 30 2016, compared to Dh35.6 billion in the same period in 2015 and 2.1 per cent higher compared to Dh40.5 billion at year-end 2015 with increase in deposits across all the segments. Current and savings accounts (CASA) balances increased by Dh1 billion (9 per cent) in the first half of this year and it represents 45.7 per cent of total customer deposits. Net impairment allowances were Dh134 million higher when compared to the first half of 2015.
