Two of the country's largest lenders booked gains in first-quarter profits yesterday amid signs of an improving outlook for banks. First Gulf Bank (FGB), Abu Dhabi's second-largest lender, and Commercial Bank of Dubai reported higher first-quarter earnings as fresh Central Bank data revealed overall bank lending also advanced last month.
"The banking industry in the Middle East shows signs of recovery, indicating that the worst of the global financial crisis may lie behind us," Boston Consulting Group said in a report. The consultancy based its findings on a survey of 33 regional banks and 21 international banks active in the region. But the study relied on results from last year and did not account for the first months of this year.
FGB reported yesterday a 23 per cent rise in net profit for the first quarter this year compared with the same period last year, while Commercial Bank of Dubai saw its first-quarter profit rise 10 per cent. Central Bank data released yesterday showed UAE bank lending grew 0.4 per cent last month to Dh1.02 trillion (US$277.72 billion) from February, while bank deposits grew 0.9 per cent to Dh967bn in the same period. The gap between loans and deposits stood at D55bn, the figures showed.
The data overview masks large differences between Abu Dhabi and Dubai banks, however. While many Abu Dhabi banks are taking in more deposits and increasing their lending, the situation is different for many Dubai banks, which are still experiencing tight liquidity. "The Abu Dhabi banks are still quite liquid, and they have the luxury to choose whether they want to take deposits or not," said Janany Vamadeva, an analyst at HC Securities.
FGB set aside "conservative" provisions of almost Dh500 million, nearly double the amount for the same quarter a year earlier. The bank said its proportion of non-performing loans stood at 2 per cent, up from 1.6 per cent at the end of last year. That is far better than its competitor Abu Dhabi Islamic Bank, the non-performing loans of which stood at 6 per cent. FGB is one of few UAE banks yet to change to international standards of reporting a loan as "bad" when it is 90 days overdue. But FGB declares loans to be "bad" when they are 180 days overdue.
The Central Bank is expected to enforce the international standard very soon. "We are right on our planned targets," said Andre Sayegh, FGB's chief executive. "FGB is starting the year 2010 with a solid financial performance." Regional banks are still outperforming their international peers, although their average revenue growth rate slowed to 7 per cent last year, far below the double-digit growth of prior years, Boston Consulting said yesterday.
UAE institutions have been at the forefront of bank provisioning in the region. Last year, UAE banks reported 40 per cent of all loan-loss provisions in the region, up from 23 per cent in 2008. Dubai banks have been hit particularly hard by sharply declining asset values, especially in the property sector, where prices have fallen by as much a 50 per cent from their 2008 peak. @Email:email@example.com