Banks in the UAE enjoyed a surge in profits last year, according to the Central Bank Governor.
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Net profits of banks grew by 11.3 per cent to reach Dh24.98 billion (US$6.8bn) in the first 10 months of last year, Sultan Al Suwaidi said yesterday. Despite the profit expansion, however, lenders on the whole had not performed as well as expected last year, say analysts.
Banks had enough liquidity from reserves, deposits and capital to meet the demands of the local market for loans and financing investments, Mr Al Suwaidi was quoted as saying by the official Wam news agency yesterday.
"Last October, these banks were able to restore balance between loans and deposits and minimise the gap which appeared for the first time last September," he was quoted as saying.
Banks have improved their balance sheets after the bursting of a property-fuelled asset bubble during the global financial crisis of 2009 left many exposed to soured debts.
But lenders' loan to deposit ratios have deteriorated in recent months. Bank lending exceeded deposits for the third month running in November, data released by the Central Bank last week showed.
"Around the middle of last year there was significant excess liquidity but that seems to have been soaked up," said Raj Madha, an analyst at Rasmala Investment Bank. "If the trend were to continue then it means we may go back to a shortfall."
Profits of all the country's five biggest banks by assets rose in the first nine months of last year. Emirates NBD, the largest, made Dh2.3bn during that period, almost surpassing its profits for all of the previous year.
But the positive banking results mask a continuation of provision-taking by lenders, Mr Madha said.
Banks have had to set aside capital cushions to avoid exposure to Dubai Holding and other government-linked companies that have either restructured loans or are negotiating to do so.
Total provisions for non-performing loans in the UAE's banking system rose by 20 per cent in the first 11 months of last year to Dh53.2bn, according to the latest Central Bank data.
Loans exceeded deposits in the banking system by Dh20.7bn in November, other Central Bank data shows.
As a new year unfolds, fresh concerns are clouding the outlook for banks. Fitch Ratings warned in a report last month of "new headwinds" facing lenders.
It said an important concern was an apparent slowdown in the pace of development in Abu Dhabi, where some projects have been scaled back or delayed.
As Dubai's economy has grown at a slower rate, lenders have come to increasingly rely on financing government-backed developments in the capital.
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