United Arab Bank has seen the fruits of its expansion drive pay off this quarter as it took on its larger rivals and boosted its corporate lending.
The lender, based in Sharjah, reported an increase in full-year profits of 7.1 per cent to Dh330 million. The bank's expansion drive in Abu Dhabi resulted in almost Dh2.5 billion of new lending as it gained market share from other lenders.
United Arab Bank almost doubled its loan book during the year as it opened new branches in Abu Dhabi and slashed mortgage entry rates to some of the lowest in the industry. The bank's shares were unchanged in trading yesterday at Dh3.64 each.
Corporate lending played a big part in the boost in loan growth as United Arab Bank, unhindered by the bad debts afflicting bigger banks, found itself able to increase credit availability. Corporate lending rose by Dh1.5bn during the year.
But tough times ahead in the property market could hit the bank's lending book. The selling prices of residential units in Abu Dhabi is expected to decline by 15 per cent this year, according to Global Investment House.
"In spite of the several project cancellations and delays that took place in the two major UAE markets, 2011 proved yet another tough year for the Dubai and Abu Dhabi property markets as expected earlier on the year," analysts from the investment bank wrote in a research report. "Average prices for residential units dropped 12 per cent and 17 per cent on average in both markets, respectively, whereas apartment rents followed a similar pattern moving down 9 per cent and 12 per cent."
For now, the bank is faring well. But the expansion drive has left the bank's loans outstripping its deposits, while provisions for bad debts have risen 265 per cent to Dh70.5m. That total should be watched carefully in the months to come.