x Abu Dhabi, UAESaturday 22 July 2017

A good month for UAE banks

Markets Review: Most UAE banks reported their second quarter earnings last month and overall numbers beat market expectations.

Nakheel announced a 57 per cent growth in the first half of the year, with net profit supported by project deliveries. Satish Kumar / The National
Nakheel announced a 57 per cent growth in the first half of the year, with net profit supported by project deliveries. Satish Kumar / The National

Most UAE banks reported their second quarter earnings last month and overall numbers beat market expectations.

The aggregate profit of all banks rose 21 per cent year on year and 4 per cent quarter on quarter.

The growth in fee income was strong across the board as economic growth boosted trade finance and other fees related income.

In the case of some banks, profit was also boosted by an increase in margins partially driven by the decline in the Emirates Interbank Offered Rate (Eibor) and repayment of high cost Ministry of Finance deposits.

Due to increasing competition, bank asset yields are coming under pressure. Provisioning still remains high, yet recoveries are picking up. Trading income of some banks was adversely impacted by an increase in bond yields. Overall loan growth in the UAE remains low but on the asset quality front things continue to show signs of stability and improvement.

In July most of the banking stocks recovered their June losses; National Bank of Abu Dhabi's (NBAD) share price increased by 15 per cent, Emirates NBD 14 per cent, Dubai Islamic Bank 15 per cent and Union National Bank 13 per cent.

The property and construction market in the UAE continued performing well last month, supported by MSCI's upgrade of the UAE to emerging market status and also optimism on the second quarter results. Emaar announced a second quarter net profit of Dh675 million, which was very much above the market expectations, supported by continued growth in the hospitality and retail segment.

Nakheel announced a 57 per cent growth in the first half of the year, with net profit supported by project deliveries and continued strong performance in the investment portfolio. During the month, shares of Emaar Properties rose 15.3 per cent while the Dubai real estate index was up 14.5 per cent.

In Abu Dhabi, Aldar shares were up 24 per cent after the company completed the merger with Sorouh, which was delisted from the Abu Dhabi Securities Exchange with effect from July 1.

In the construction segment, Arabtec successfully completed a rights issue worth Dh2.35 billion and which was oversubscribed by 30 per cent. The rights issue shares were available for trading from July 28 and the stock rose 9.7 per cent in July. During the month, shares of Drake & Scull increased by 28.6 per cent on the back of renewed market chatter on a potential stake acquisition by Arabtec.

In the UAE telecoms sector, both Etisalat and du surprised the market again with solid second quarter numbers and most importantly, by increased dividend payouts.

Etisalat reported better than expected quarterly profit and also lifted its half yearly dividend by 10 fils to 35 fils. The company said it had entered into an exclusive negotiation with the French company Vivendi for its 53 per cent stake in Maroctel. Etisalat has valued Maroctel shares at a total consideration of Dh18.8bn, and the offer price does not include the 2012 dividend of 7.4 Moroccan dirhams per share received by Vivendi from Maroctel.

Etisalat will pay Vivendi the cash value of the dividend, if the acquisition goes through. The acquisition of Vivendi's stake in Maroctel will require Etisalat to submit a mandatory offer to the remaining shareholders in Maroctel that might result in Etisalat acquiring a further stake in Maroctel.

Du's second quarter 2013 net profit was in line with expectations but the company surprised the market once again by declaring a dividend of 22 fils, including a special dividend of 10 fils for the first half of 2013.

On July 31, DP World reported consolidated second quarter throughput volume of 6.6 million standard containers, which was down by 5 per cent year on year. UAE second quarter volume came in at 3.5 million standard containers, which was 3.7 per cent up year on year and 12.8 per cent up quarter on quarter. Except for the strong performance from the Americas and Australia, all the other operating regions witnessed decline in throughput volume in the first half, reflecting continuously challenging market conditions.

The management expects full year volume to be in line with 2012. The stock was up by 2 per cent in July, underperforming the Dubai Financial Market, which was up by 13 per cent in the month.

 

Saleem Khokhar is the head of equities at NBAD Asset Management