UAE lenders’ slow corporate loan growth offset by individual lending

UAE bank earnings exceed expectations as increased retail loans and revenue from services such as asset management make up for weakening corporate appetite for debt.

National Bank of Abu Dhabi's net income rose to Dh1.42 billion in the second quarter. Galen Clarke / The National
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UAE banks showed signs of slowing corporate loan growth in the second quarter, but this was offset by an increase in loans to individuals as well as fees from services such as asset management and trade finance. While analysts expect that the corporate loan lull will continue for the remainder of the year, big infrastructure projects ahead of Expo 2020 should reinvigorate demand in 2015.

The country’s four biggest banks, National Bank of Abu Dhabi, FGB, Abu Dhabi Commercial Bank and Emirates NBD, all reported earnings last week that exceeded the expectations of analysts – even though the appetite for loans dwindled from corporate clients, some of them now cash-rich after having paid off lingering debts.

“Loan growth was subdued because of weak corporate appetite as some of the legacy loans have been repaid, especially by Abu Dhabi’s public sector, and that has weighed down on corporate growth,” said Shabbir Malik, a Dubai-based analyst for the Egyptian investment bank EFG Hermes. “There could be a second leg up once we see demands for Expo related projects. There might be a pick up in 2015.”

The UAE’s banks have ridden an economic revival that picked up speed last year when growth exceeded 4 per cent after the years of languor that followed Dubai’s 2009 debt crisis. At the same time, the banks’ competition for retail customers has become especially fierce in a country where more than 50 banks (not all of them catering to individual clients) serve 9 million people.

In the second quarter, the surprise in earnings came not only from the ability of banks to sell more loans to individuals, where the margins they get are higher because of increased risk, but through their efforts to diversify income away from loans, said Sanyalaksna Manibhandu, senior analyst at NBAD.

NBAD, the biggest publicly traded bank in the country, said that its loans grew 2 per cent to Dh182bn in the second quarter from the first quarter. The growth in loans in the second quarter was more subdued than in prior periods.

That has led NBAD to focus on getting profit from services as such asset management, securities brokerage, foreign exchange and trade finance. It is also tapping a US$137 billion market for corporate banking in a so-called West-East emerging market corridor where many companies have cross-border needs.

Dubai-based Emirates NBD, which has the biggest branch network in the country, said that income from its retail banking and wealth management division grew 15 per cent in the first half to Dh2.79bn as it deepened relationships with clients and found ways to sell them more products as well as making banking easier through smartphones and the internet.

The banks were also lifted by the fact that, with interest rates at record lows, they are paying individual clients next to nothing for their deposits, said Mr Manibhandu.

“Banks have found ways to offset lower interest rates by giving out more retail loans and they have higher margins than corporate loans,” Mr Malik noted. “The proportion of retail loans in the loan books is growing and these retail loans are higher margin and that’s offsetting competitive pressure on rates.”

mkassem@thenational.ae

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