x Abu Dhabi, UAEThursday 18 January 2018

UAE bank reports may put region to shame

Kuwaiti lender posts profit fall investors fear will not be last

DUBAI // Lenders in the UAE could hardly have asked for a better start to the earnings season last week than when Abu Dhabi Islamic Bank and First Gulf Bank greatly exceeded analysts' expectations. But investors looking at other regional banks should be sceptical over whether the positive results will spread. Kuwait's Gulf Bank, in a filing to the Kuwaiti bourse yesterday, said its net profit for the first three months of the year dropped 67 per cent to 524,000 dinars, from 1.6 million dinar in the same quarter last year.

The steep drop in profitability was the opposite of what analysts were anticipating. Global Investment House in Kuwait was anticipating Gulf Bank would beat its own performance of last year and post a net profit of 8m dinar. The fifth-largest lender by market capitalisation, Gulf Bank grabbed headlines in 2008 when the country's central bank came to its rescue after derivatives losses, which led to the government guaranteeing deposits for all banks in order to boost confidence in the banking system.

Gulf Bank shares closed 1.3 per cent lower to 375 fils. It is trading almost 20 per cent below its levels at the end of April last year. Ahli United Bank-Kuwait, which became an Islamic banking entity last month, also reported a drop in profitability on Thursday. Its shares closed flat yesterday. But the biggest loser of the day was Kuwait Finance House, the country's second-largest bank, which retreated 1.9 per cent to 1.04 fils as investors feared it may also disappoint with first-quarter earnings.

The picture for lenders elsewhere is not pretty either. Saudi Arabia is perhaps the worst hit, as profitability for most of the 11 listed commercial, Islamic and investment banking entities has eroded significantly. As HC Securities pointed out in a recent bullish report, UAE banks absorbed the pain from the financial crisis last year by booking significant provisions. Other regional banks were slower to account for the excess lending from the boom, and their results continue to show it.