Union National Bank (UNB) grew its profits faster than expected, but its balance sheet shrank as it cut lending.
The Abu Dhabi lender reported a 6.9 per cent increase in net profit during the third quarter to Dh528.2 million (US$143.8m), driven by its Islamic finance operations and one-off capital gains on investments. Analysts had forecast a dip in profits.
Lending by the UAE's big banks has grown at a snail's pace this year, providing opportunities for smaller lenders to quickly build their customer base.
UNB's results were better than expected, showing a slow but steady improvement in revenue, said Naveed Ahmed, a financial analyst at Global Investment House.
"Overall we see the results in good light," he said.
"The bank's top line maintained an upward trajectory during the quarter under consideration.
"Despite our reservations regarding its ability to maintain this trend in the next few quarters, we take this as a very positive sign."
A decline in fee income was offset by capital gains, but Global said that raised questions about the sustainability of the rise.
The bank's deposits fell by 7.9 per cent to Dh55.2 billion during the quarter, while lending also declined by 1.1. per cent to Dh56.6bn.
Meanwhile, smaller Sharjah-based rivals to big Abu Dhabi lenders posted a mixed bag of results, with United Arab Bank growing rapidly against smaller profits at Sharjah Islamic Bank (SIB).
Net profits at UAB increased 32 per cent to Dh298m during the first nine months of the year, compared with the same period a year earlier, as it expanded its branch network across Abu Dhabi and competed in lending.
The stock gained 1 per cent yesterday.
SIB also reported earnings, generating profits of Dh59.5m during the third quarter, down 26.9 per cent from the same period last year.