Central bank sees higher profits in 2010-2011

The UAE central bank expects its net profits to rebound sharply during 2010-2011 after a decline of more than 14 per cent in 2009.

Holding its last regular meeting for 2010 on Thursday, the central bank board of directors discussed the annual balance sheets and other monetary issues for this year and 2011, according to the official news agency WAM.

It expected the net profits to surge from around Dh3.18 billion in 2009 to nearly Dh3.67 billion in 2010 and Dh3.7 billion in 2011.

Total revenue for 2011 was put at about Dh4.8 billion while expenses were projected at Dh1.11 billion, including interest on certificates of deposits.

A sharp fall in interest income depressed the central bank’s net profits by 14.4 per cent in 2009 but its investment income more than doubled through the year.

From Dh3.722 billion in 2008, the Central Bank’s net income dipped to Dh3.184 billion in 2009, the central bank said Bank said in its 2009 report.

The decline was caused mainly by a plunge in interest income from a record Dh5.688 billion in 2008 to only Dh461 million in 2009.

But this was partly cushioned by a surge in investment income from about Dh1.539 billion to Dh3.844 billion in the same period.

Interest expenses plunged from around Dh3.188 billion in 2008 to Dh701 million in 2009 while net interest and investment income shrank from nearly Dh4.039 billion to Dh3.614 billion, the report showed.

The central bank’s latest balance sheets showed it slashed its deposits with foreign banks by nearly 45 per cent in the first eight months of 2010 but boosted investment in foreign securities by at least Dh45 billion.

The cut in deposits followed a decline in the Central Bank’s interest income in 2009 and a large increase in its profits from foreign securities.

From around Dh85.6 billion at the end of 2009, the Central Bank’s deposits with banks abroad dipped to nearly Dh47.2 billion at the end of August.

The decline was offset by a sharp rise in the Central Bank’s investment in held-to-maturity foreign securities, usually a long term security that a company or individual holds until its date of maturity like three or five years. Profit in such tools is guaranteed as they are not affected by market swings.

From a negligible Dh37 million at the end of 2009, these investments by the Central Bank leaped to one of their highest levels of nearly Dh46.5 billion at the end of August 2010, according to the report.

The investments were also relatively high at around Dh29.5 billion at the end of 2008 before slumping through 2009 apparently after they matured.

The massive change in the Central Bank’s investment portfolio followed a steep drop in its income from interest and higher earnings from securities.

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