Dubai: Starting this week, UAE lenders are expected to report their full year financial results showing significant gains in profits and asset growth with stronger balance sheets compared to 2013.
While the sharp decline in oil prices in the fourth quarter that resulted in portfolio investment losses, analysts say the overall performance for the year will be substantially better compared to last year due to strong growth in retail, wealth management and strong growth in fee incomes.
The growth has been euphoric in the first three quarters of last year with top end of the retail banking small and medium enterprise and wealth management business benefiting from improved capital market valuations and consequent wealth effect.
The UAE’s bank lending the UAE reached a new high in the month of November, growing 1.5 per cent month on month and 10.2 per cent year on year in November to record the fastest growth in five years, according to the latest central bank data.
Personal loan growth, which accounts for about 22 per cent of total bank loans, has grown at a much faster rate of 15.5 per cent year on year in November suggesting that individual or retail demand for credit is particularly robust and that banks are increasingly willing to lend to this sector.
“The accelerating loan growth data provides further evidence [in addition to relatively high purchasing managers index readings] that non-oil sector activity has been strong in the fourth quarter of 2014, even as oil prices declined sharply,” said Khatija Haque, head of Mena Research at Emirates NBD.
In the UAE, the banking sector credit growth was about 4 per cent for the first six months of this year. Analysts expect the overall credit for the year to be about 7 per cent with a stronger outlook for next year. The institute of International Finance (IIF) and Credit rating agencies Moody’s and Standard and Poor’s expect around 8—9 per cent credit growth for the sector in 2014, in line with healthy economic activity driven by strong government spending and non-oil private sector growth.
Bankers say the sharp decline in the stock market valuations and a change in risk perception have affected the outlook for business environment and the impact could be reflected in the first quarter of 2015.
Change in investor perception in the last few weeks has come as a wake up call for the UAE banking sector. Clearly, risk apatite has taken a hit. But the full year profits are expected to be exceptionally due to strong performance in the first three quarters.
Despite a change in outlook following consistent decline in oil prices in the fourth quarter, analysts expect banking sector profits to be significantly better than compared to the same quarter in 2013. According to a recent poll of analysts by Reuters Abu Dhabi Commercial Bank (ADCB) is expected to report a net profit of Dh920 million for the fourth quarter of this year, based on an average of projections by three analysts. ADCB reported a net profit of Dh793.1 million in the fourth quarter of 2013, pointing to about 16 per cent growth in profits.
While First Gulf Bank (FGB) is projected report about Dh1.37 billion about the same as in the fourth quarter of last year, analysts say National Bank of Abu Dhabi and Union National Bank are expected to report 20 per cent and 40 per cent growth in fourth quarter profits respectively.
