The big banks are set to release stellar third-quarter results after Eid, with Dubai’s lenders expected to set the pace.
Analysts at National Bank of Abu Dhabi (NBAD) are forecasting as much as Dh5.3 billion in aggregate profit for seven banks for the quarter. Lower interbank offered rates, robust credit activity and bigger customer deposits are all indicators signalling recovery and growth for the banking sector, the report said.
Two Dubai banks are expected to show the highest rate of profit growth in the quarter, according to estimates by NBAD.
Emirates NBD, the nation’s biggest lender by assets, is expected to report Dh924 million, a rise of 44.4 per cent from last year.
And Dubai Islamic Bank is expected to record Dh420m in quarterly profit, a 40.8 per cent rise from last year’s figure.
What is giving Dubai banks in particular a boost is the emirate’s improved asset quality.
“During the financial crisis, we were overweight on Abu Dhabi banks because the asset quality was better, but now that the market recovered, Dubai banks are looking interesting too,” said Tariq Qaqish, the head of asset management at Al Mal Capital, a Dubai-based investment bank.
In a report, NBAD said Dubai’s banks have earned a position reassessment of how high their share prices should be.
“Given Dubai-based banks had suffered sharp relative value compression amid the slowdown in the emirate since 2008, increasing evidence this year of a stronger recovery in the property sector than expected as well as in the broader economy is leading to relatively sharp re-rating, as in the cases of Emirates NBD and Dubai Islamic Bank,” said Sanyalak Manibhandu, an analyst, in the report.
“We believe the re-rating has further head room, subject to UAE banks continuing to deliver operational performance outturn that reflects accelerating asset momentum and improving credit quality.”
Shares of Emirates NBD and Dubai Islamic Bank (DIB) have rallied 92.6 per cent and 100 per cent respectively so far this year.
Dubai banks’ shares have rallied 77.8 per cent this year, according to Bloomberg data. They have outperformed the Dubai Financial Market General Index, which has rallied 74.4 per cent in the same period. Abu Dhabi’s lenders have jumped 48.3 per cent, compared with 46.6 for the index.
NBAD’s estimates for Abu Dhabi’s banks are as follows:
• Abu Dhabi Commercial Bank, the third biggest lender by assets, is expected to make Dh794m in third quarter profit, a 33.6 per cent increase from the year previous.
• First Gulf Bank, the lender controlled by Abu Dhabi’s ruling family, is expected to record Dh1.17bn in profit, a rise of 11.6 per cent.
• National Bank of Abu Dhabi, the biggest lender by market capitalisation, is expected to report Dh1.09bn. “Given NBAD has not grown its net advances [credit] consistently in the past two years or so, market expectations are less demanding than they might be for the second biggest bank in the UAE by total assets and loan market shares,” the NBAD report said.
• Union National Bank, another Abu Dhabi-listed lender, is expected to record Dh511m in the third quarter, a drop of 3.2 per cent from the year previous. “UNB has been negotiating with Dubai government related entities [GREs] on debt restructuring for many months,” the report said. “The equity markets expects the bank to conclude restructuring with at least some of the GREs before the end of this year. Further extension to debt restructuring negotiations could disappoint some investors.”