UAE banks maybe on the cusp of revival amid cost cutting and higher interest rates – if the first batch of first-quarter results are anything to go by.
Among the big banks to report over the past week both the National Bank of Abu Dhabi and Emirates NBD, the country’s two biggest lenders, posted earnings that also showed an improvement in non-performing loans, a sign that the debt crisis that plagued small and medium-sized enterprises in the wake of the oil price crash are subsiding.
“System liquidity is improving and concerns with SME credit quality have eased,” said Sanyalaksna Manibhandu, the head of research at NBAD Securities.
“Improving system liquidity and asset re-pricing amid central bank rate hikes should help NIMs [net interest margins] improve later in the year. Banks are controlling costs. So the outlook is for improvement, with some banks delivering better operating and net performance sooner than others in the rest of the year and into 2018.”
Emirates NBD said last week that net profit for the first three months increased by 3.6 per cent year-on-year to Dh1.87 billion from Dh1.8bn a year earlier.
The reported net profit figure was ahead of analyst expectations, with an average forecast of a 1 per cent decline to Dh1.79bn.
Costs fell by 11 per cent year-on-year, the lender said in its results presentation document released to the DFM. Last year, about 300 jobs were shed by the group. Impairment allowances also fell in the first quarter, to Dh639 million, from Dh829m, a year earlier.
Meanwhile, National Bank of Abu Dhabi, said that its pro forma first-quarter profit that includes that of FGB, with which it merged this month, rose 12.4 per cent amid rising revenues and cost savings garnered from the combination.
Net profit rose to Dh2.93bn in the first three months of the year compared with Dh2.6bn in the same period last year, the bank said. Net interest and Islamic financing income dropped 4.9 per cent to Dh3.2bn in the first quarter from Dh3.37bn in the same period last year. Net fees and commissions decreased 14.7 per cent to Dh799m from Dh936m, while other non-interest income surged 145.5 per cent to Dh1.2bn from Dh487m.
The global consultancy Alvarez & Marsal said in its inaugural report on the country’s banking sector last week that there are increasing signs of recovery following several dismal years amid a rise in bad debts and lacklustre lending growth.
While the profitability of UAE banks has been dented in recent years, the industry remains in better shape overall than its global peers, the consultancy said.
While the fall in the price of oil, which has been reversing since November, led to an increase in borrowing by governments to reduce those deficits, it has softened demand for loans among local corporations and increased the level of debt defaults. Among the hardest hit have been small and medium-sized businesses.
Despite the recent woes of the banking industry there are some signs to cheer, such as an increase in lending despite the provisions that banks are continuing to take, as well as tighter control on expenses.
mkassem@thenational.ae
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