Two of Abu Dhabi's biggest banks set aside a total of almost Dh1.1 billion (US$299.4m) in provisions as they braced for further possible losses on their loan books from defaulting customers. Abu Dhabi Commercial Bank (ADCB), the emirate's third-largest lender, booked Dh810m in bad-loan charges, while National Bank of Abu Dhabi (NBAD), the largest UAE lender by market capitalisation, set aside Dh284m.
The move virtually wiped out ADCB's third-quarter profit, while NBAD posted a 41 per cent gain in the period. Analysts said local lenders would continue to take provisions as the fallout from the worst financial crisis in 80 years works its way through the banking system in the form of customers who can no longer pay their debts. "We don't expect provisions to drop to a more normal level until after the second quarter of 2010," said Raj Madha, a senior research analyst at EFG-Hermes.
The economic crisis has taken its toll on UAE banks, which were forced to set aside higher provisions to protect themselves against possible loan defaults since the beginning of the year. The only exception, Emirates NBD, the country's largest lender by assets, said on Monday it had slowed provisioning while warning that non-performing loans had not yet peaked. ADCB's third-quarter profit dropped 91 per cent drop to Dh44m compared with the same period last year, sending the stock 8.3 per cent lower yesterday, the most in nine months. NBAD lifted its profits to Dh914m thanks to a strong rise in net interest income.
So far in the year, ADCB has set aside Dh1.7bn, or Dh7 out of every Dh10 it has earned, to cover loan defaults. ADCB is heavily exposed to the troubled Saudi conglomerates Saad Group and Ahmad Hamad Al Gosaibi and Brothers, which owe ADCB an overall Dh2.2bn. Given its provisions, the bank could only report a profit thanks to gains in its investment portfolio. "They are relying on mark-to-market gains to compensate for high provisioning," said Mr Madha.
ADCB said its total non-performing loans (NPLs) now account for 4.2 per cent of its loan book, or 2.6 per cent when excluding its Saudi exposure. Most analysts expect a further deterioration in credit conditions this year. Ian Munro, the head of research at the investment banking boutique MAC Capital, expects NPLs to rise to as much as 4 per cent of total loans in the UAE by the end of the year. By comparison, NPLs reached 5.1 per cent in the US in 2007.
ADCB had accounted for about 20 per cent of its exposure to the Saudi groups by the end of June. However, it was unclear how much of the current Dh810m went towards its exposure to those groups, and how much of that exposure is now covered. ADCB warned it would continue to take more provisions for the rest of the year and that it was too early to lower its guard. @Email:email@example.com