What's Up: Mashreqbank reports its fourth consecutive quarter of earnings growth, as its turnaround story starts to look convincing.
Mashreq profits soar 85% in third quarter
Mashreq almost doubled profits in the third quarter as it notched up a year of steadily improving quarterly earnings and is looking increasingly like a turnaround story.
The Dubai bank reported an 85 per cent rise in net profits in the third quarter to Dh379.1 million. It was the fourth quarter of steadily improving earnings for Mashreq, which had until this year struggled to resume lending.
Total loans have increased 9.3 per cent to Dh35 billion this year until the end of September, reflecting above-trend credit growth.
Total UAE lending grew by 1.8 per cent to Dh1.09 trillion at the end of August, according to the latest data. Figures for last month were not available.
Mashreq stocks have fallen 39.8 per cent this year to Dh55 each, so it might look oversold in light of four straight quarters of growth.
However, investors may struggle to buy into the bank's stocks which are illiquid and have traded on just 12 days so far this year.
The bank's loan book has contracted by as much as 31.5 per cent since 2008 as it wound down bad debts and set aside capital to cover additional charges during each consecutive year.
With Dubai's economy recovering, profits are also expected to increase in the coming months, a Fitch Ratings report last month on the bank said.
"Revenue generation remains under pressure, due to the bank's past focus on de-risking and deleveraging," said the report. "Following the working through of some of its large problem loans combined with a change in strategy, Fitch expects core earnings to pick up from current levels, particularly as the operating environment is slightly improving."
Mashreq may enjoy something of a first-mover advantage among UAE banks for branching out into accounts denominated in the Chinese yuan this year.
However, it will have to focus on small to mid-sized companies since rivals such as HSBC, Standard Chartered and Industrial Commercial Bank of China will are likely to dominate lending to the big names.
But that might not matter as long as the Chinese small business segment is booming.