Mashreqbank profits dip on economic malaise

Mashreqbank, the country's fifth-largest bank by assets, has announced a 13.6 per cent decline in net profit for last year to Dh1.64 billion (US$447 million), citing global financial stress and a scarcity of credit. The drop was largely due to losses on investments, which stood at Dh335m last year, and provisions for possible defaults on loans, which amounted to Dh762m. "The market conditions indicate that 2009 will be a challenging year for the UAE banking sector," said Abdul Aziz al Ghurair, the chief executive at the bank and Speaker of the Federal National Council. "Liquidity and capital management will be our top priority. Soundness, not revenue growth, will be the key theme for Mashreq in 2009." Mashreqbank, the second-oldest local bank in the UAE and one of two not owned in part by the Government, has traditionally geared itself towards retail banking, which accounted for 38 per cent of its revenue last year, more than most other banks in the country. The bank has also become known as a relatively conservative investor, with little money tied to the property market. According to a spokesman, the bank is relatively well positioned to weather further declines in property prices because it holds the smallest market share of Dubai retail mortgages among local banks. Non-performing loans, which comprised 0.6 per cent of Mashreqbank's total loan book at the end of last year, are expected to rise this year throughout the banking system if economic conditions continue to worsen. Earlier this month, Mashreqbank became the first local bank to announce redundancies due to the financial crisis when it laid off 4 per cent of its workforce. The bank said it was still taking steps to ensure cost efficiency, given the difficult economic conditions. Mashreqbank is the second Dubai-based bank to report its annual results for last year, following Emirates NBD, the region's largest bank, which posted a 7 per cent decline in annual net profits last Thursday. Banks throughout the country have been expected to show a drop in earnings for last year, especially during the final quarter, as losses related to the global financial crisis took hold and provisions on loans increased. Mashreqbank's fourth-quarter net profit fell by 77 per cent compared with the same quarter in 2007, according to a calculation by The National. Although the bank did not disclose quarterly data in its statement, fourth-quarter net profits could be determined using data provided in previous quarterly statements. The bank announced a Dh1.51bn net profit for the first three quarters of last year, and Dh549m net profit for the final quarter of 2007. So far, Dubai-based banks have posted declines in annual net profits for last year. Abu Dhabi banks, by contrast, have posted an increase in net profits, although most of the increases were smaller than in 2007. Nonetheless, analysts expect most local banks to fare better than those in the West, since the UAE banking sector has benefited from strong earnings through September of last year and enjoys the support of the Federal Government. "Fitch believes the probability of support for the majority of banks the agency rates in the UAE remains extremely high," said Robert Thursfield, the director of financial institutions at Fitch Ratings in Dubai. Mr al Ghurair recently urged the Government to take additional steps to ease the funding shortage within the local financial system, including tapping the country's savings held in sovereign wealth funds. The bank has received funds from the Federal Government, which has pledged as much as Dh120bn to local banks. The bank's capital adequacy ratio was 14.1 per cent at the end of the year, higher than the minimum requirement of 10 per cent mandated by the Central Bank. Trading on Mashreqbank stock has been infrequent for the past few years because the bank does not permit foreign shareholders and only 13 per cent of its stock is public. The al Ghurair family, along with the Al Ghurair Group, own 87 per cent of the bank. The bank's stock last traded for Dh250.80 a share last month. Several other Dubai banks, including Commercial Bank of Dubai, Dubai Islamic Bank and Dubai Bank, are expected to report their annual earnings by the end of the month. tpantin@thenational.ae