First Gulf Bank (FGB) grew steadily during a quarter when steady growth was hard to find. Investors took notice yesterday, sending the stock to a five-week high.
FGB reported profits for the third quarter of Dh920.3 million on Monday, an increase of 8.4 per cent. That pushed the stock 2.8 per cent higher to Dh14.65 a share in trading on the Abu Dhabi Securities Exchange yesterday.
The bank was able to fend off the effect of Central Bank regulations on fees and commissions, implemented in May, for a second consecutive quarter. That should give investors cause for optimism that the bank's recent growth patterns can be sustained, analysts from Arqaam Capital wrote in a research report.
"Growth in net lending was in line with our estimate and adds credibility to management's guidance that above-sector credit growth can be maintained despite the recent retail regulation introduced by the Central Bank," the Arqaam Capital report said.
But income from fees and commissions has been hammered by the Central Bank's regulations during the quarter, falling 43 per cent from last year to Dh263.5m. Bank fees alone fell 64.8 per cent. That income is not coming back unless credit grows exponentially.
Lending is growing, but more conservatively, rising 3.4 per cent during the quarter to Dh1.01 billion. Provisions for bad debts fell by 6.6 per cent to Dh379.2m. FGB's potential returns are substantial, especially when compared with other banks, largely because of its more generous dividends.
Goldman Sachs expects dividend yields for FGB, at 4.3 per cent, to outpace other Abu Dhabi banks, including the National Bank of Abu Dhabi and Union National Bank.
Key risks include "a prolonged slowdown in the UAE economy, particularly in the real estate sector, and substantial further write-offs as a result of corporate debt restructuring", the Goldman Sachs analysts wrote in a note.