x Abu Dhabi, UAETuesday 16 January 2018

Top banks letting the credit flow

National Bank of Abu Dhabi and RAKBank up lending as the economy gets onto a sounder footing, but profits are a mixed back.

Two of the Emirates' biggest banks opened the lending taps as the economy got back on its feet in the first quarter.

A push to sell retail products such as credit cards, motor insurance and prepaid cards by RAKBank lifted the bank's first-quarter net profitto Dh293.1 million (US$79.8m), an increase of 28.5 per cent over the same period last year.

National Bank of Abu Dhabi (NBAD), the UAE's biggest bank by market capitalisation, recorded a 4.7 per cent rise in lending during the first quarter, despite reporting an overall decline in net profit as it booked more provisions. It reported first-quarter profit of Dh927m, a decrease of 10 per cent over the same period last year.

Jaap Meijer, a financial analyst at Alembic HC Securities, said NBAD was benefiting from a greater ability to lend because of the country's growing oil revenue.

"There's so much oil money coming in at the moment, and that'll find its way through the domestic economy," he said.

Bank lending dried up during the global financial crisis, and lending was sluggish as the recovery took hold last year. Now banks are increasing lending as confidence in the economy improves. Car dealers say an increase in credit has sparked a boom in vehicle sales, and several banks have reduced mortgage rates.

However, with new Central Bank rules on retail lending coming into effect next month, RAKBank may have to change tactics to keep its profits up.

"The impact will be moderate and the bank will find other ways to continue and have a strong profitability, although they're probably going to be hit on the fees and commissions," said John Tofarides, a banking analyst at Moody's Investors Service.

RAKBank relies on retail lending for 95.5 per cent of its revenue. The bank's net interest income rose to Dh445.1m, a 19.4 per cent increase from the same period last year, while income from fees and commissions rose 34.8 per cent to Dh186.6m.

NBAD's lending increased 4.7 per cent to Dh143.2 billion, while deposits in the quarter rose to Dh141.1bn, a 14.6 per cent increase.

However, non-performing loans increased 16.1 per cent during the quarter to Dh3.7bn as a number of corporations, including Abu Dhabi's Al Jaber Group, sought to restructure debts.

NBAD's operations were also affected by the revolution in Egypt, where the bank has 28 branches.