Abu Dhabi banks’ Q4 provisions to jump 71%

Provisions by Abu Dhabi-based commercial banks will jump by 71 per cent quarter-on-quarter in Q4 of 2010 following the UAE Central Bank’s directive to hike provisions for their exposure to troubled Saudi groups Saad and Algosaibi, according to analysts forecasts.

Four Abu Dhabi-based commercial banks – Abu Dhabi Commercial Bank, Abu Dhabi National Bank, First Gulf Bank and Union National Bank – will announce Dh2.41 billion in total provisions during Q4 2010 compared to Dh1.41bn in Q3 2010, analysts at Shuaa Capital said in a note.

A circular sent to all lenders by the UAE Central Bank said to hike provisions from 50 per cent to 80 per cent for their exposure to Saad and Algosaibi and 100 per cent to their Bahraini unit on or before December 31, 2010.

A separate circular issued in November by CB made mandatory for local banks to book provisions every quarter instead of waiting until the end of the year to cover bad loans.

Among the four, Abu Dhabi Commercial will record highest provisions of Dh949 million followed by FGB (Dh623m), NBAD (Dh512m) and UNB (Dh323m) during Q4 2010, Sofia El Boury and Ghida Obeid, banking and financial services analysts, said in a forecast note.

Huge provisions by ADCB will likely push the bank into red during the last quarter, posting expected loss of Dh229m. The bank also announced record quarterly provisions in Q4 last year of Dh2bn. However, the other three banks are likely to announce profits, but lower than Q4 2009 with the exception of NBAD.

In third quarter last year, ADCB recorded highest provisions at Dh656m provisions, followed by FGB (Dh406m), NBAD (Dh320m) and UNB (Dh31.4m).

Analysts said the UAE banks will also announce substantially higher provisions for the month of December following the Central Bank’s directive.

“For December 2010, we expect specific provision additions to be even more pronounced following the latest Central Bank directive… This tighter governance translating in to higher provisions charges, among other important reforms, will hike overall quarterly provisions and as such is drawing a gloomy picture for UAE banks’ fourth quarter 2010 earnings,” El Boury and Obeid said.

By the end of November 2010, the UAE banks’ total provisions had reached Dh55 billion – a year-to-date increase of 27 per cent and 1.7 per cent month-on-month. Specific provisions have risen 26.4 per cent to Dh41.2 billion by the end of November. They rose four per cent month-on-month. While general provisions totalled Dh13.8bn.

 “Nevertheless, we view these necessary adjustments and clean-up processes (by the Central Bank) as the means through which banks could faster return to health and profitability in 2011,” analysts added.

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