x Abu Dhabi, UAEMonday 22 January 2018

Central Bank rules may hit First Gulf Bank

First Gulf Bank was downgraded to "hold", from "buy" yesterday at Dubai-based Rasmala investment bank. The analyst said the Central Bank circular which placed a cap on retail lending is likely to affect the bank's profitability.

First Gulf Bank is likely to take a hit from new retail banking regulations published by the Central Bank, says an analyst at Rasmala Investment Bank, based in Dubai.

The bank "is linked particularly to personal lending to UAE Nationals, an area we believe is directly addressed by recent regulatory pricing and lending limits", said Raj Madha in a note to clients yesterday.

Mr Madha downgraded the stock to "hold" from "buy", but raised the fair-value price of the shares to Dh19.99, from Dh18.78. Shares of First Gulf Bank, based in Abu Dhabi, were little changed at Dh18.35 yesterday.

The new lending regulations, which went into effect on May 1, cap personal loans at 20 times a borrower's monthly salary and stipulate the loans must be repaid within 48 months.

The regulations cover all retail loans including personal, car, housing and credit cards. They are intended to control lending activity and excessive charges by banks following public complaints about a surge in bank fees.

Personal loans in the UAE rose by at least 35 per cent between 2006 and 2008 before they sharply slowed down over the past two years following the 2008 global financial crisis and regional debt default problems, according to the Central Bank.

Personal loan growth last year slowed down an additional 3.7 per cent and stood at about Dh246 billion at the end of the year. Despite a huge increase in total loans in the first two months of this year, personal loans did not grow at the same pace, according to the Central Bank.

Along with other banks in the UAE, First Gulf Bank has posted little growth in the first quarter of this year, with loans rising just 1.7 per cent on the last quarter of last year.

"[First Gulf Bank] isn't overly optimistic either about private-sector lending going forward," Mr Madha said.

"Similarly to its competitors, it sees most growth in the sovereign sector, driven by generally large-ticket projects in energy, manufacturing and infrastructure. Nevertheless, an acceleration to double-digit levels remains elusive."