UAE banks generally performed better in the first half of 2010 despite losses by one of the country’s largest banking units and a continued post-crisis drive to build up loan loss provisions, their balance sheets have shown.
The net earnings of 12 national banks that have released semi annual results grew by around 2.2 per cent to Dh8.238 billion in the first half of 2010 from around Dh8.053 billion in the first half of 2009.
Excluding the government-controlled Abu Dhabi Commercial Bank (ADCB), which reported losses for the first half, the combined net income of the 11 listed banks swelled by nearly 7.2 per cent, their financial statements showed.
ADCB said it posted a loss of around Dh306 million in the first half of this year against a net profit of nearly Dh657 million in the first half of 2009. It attributed the loss to its exposure to the Dubai World by around $1.8 billion.
Emirates NBD, the largest bank in the UAE by assets, reported a 51 per cent decline in its net profits in the first half of 2010 because of its exposure to Dubai World. From Dh2.111 billion, its profits plunged to Dh1.513 billion.
Lower profits were also reported by three other banks—Sharjah Islamic Bank, National Bank of Umm Al Quwain and Invest Bank.
Banks which recorded growth in their net earnings include First Gulf Bank, which said its profits soared by around 11.8 per cent to a record high of Dh1.707 billion in the first half of 2010 from Dh1.526 billion in the first half of 2009.
The government-controlled National Bank of Abu Dhabi (NBAD), the country’s second largest bank, reported an increase of about 21 per cent in its net profits in the first half of this year while there was sharp growth in the income of two other major banks—Union National Bank and Mashreq Bank.
National Bank of Fujairah, Abu Dhabi Islamic Bank and Commercial Bank of Dubai also recorded increases in their first half earnings.
“The results of these banks are generally good but ADCB’s results had been expected given its heavy exposure to Dubai World,” said Fadi Kiswani of the Sharjah-based Alsharhan Securities, a key UAE stocks and investment firm.
“The banks’ net income could be higher but they are stifled by continued provisioning and the fact that their lending is still tight… our expectations are that the sector’s performance this will be somewhat equivalent to 2009…….I don’t see high profit growth as it is still a year of stagnation.”
Central Bank figures showed UAE banks are pushing ahead with a post-crisis provisioning drive because of their exposure to Dubai World, the domestic real estate sector and two Saudi financially troubled family businesses.
In June alone, the country’s 23 national banks and 28 foreign units chopped nearly Dh1.7 billion off their coffers for non-performing loans, bringing their total NPL provisions to nearly Dh36.9 billion at the end of the first half.
Analysts believe the banks need to take more NPL provisions as they appear to be heavily exposed to the real estate and construction sector because of a sharp downturn in the aftermath of the 2008 global fiscal crisis.
According to a key Western financial institution, UIAE banks have emerged as more vulnerable to real estate downturns than those in other Gulf oil producers because of their massive lending for that sector.
The Washington-based Institute of International Finance (IIF) said overexposure to real estate and Saudi businesses has eroded the Gulf banks’ asset quality.
“In the UAE, the banking system is significantly exposed to the construction sector and the highly speculative real estate sector. Several banks in the UAE are exposed to high levels of credit risk in connection with the family-affiliated conglomerates in Saudi Arabia and government-related entities in Dubai.”
Its figures showed the NPL ratio of UAE banks rose from 2.5 per cent at the end of 2008 to 4.3 per cent at the end of2009, and is expected to grow to about nine per cent at the end of this year. The report said the increase is partly due to the central bank’s tightening of regulatory standards via a reduction of the loan classification period from 180 days to 90 days.
Experts said some UAE banks made higher profits in the first half of this year from services and their investments, mainly in foreign markets.
The Central Bank figures showed the country’s banks boosted their deposits abroad by more than Dh18 billion during the first four months of 2010 as they sought to offset a sharp slowdown in their domestic credit.
From around Dh55.5 billion at the end of 2009, the combined demand and time deposits of the country’s 51 banks surged to Dh74.02 billion at the end of April.
The increase lifted the banks’ total foreign assets to one of their highest levels of around Dh215 billion at the end of April from Dh208.1 billion at the end of 2009.