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09 December 2023

Better Q4 bank results may not offset impact of global crisis

Better Q4 bank results may not offset impact of global crisis. (EB FILE)

By Nadim Kawach

The UAE banks are believed to have performed well in 2009 but massive bad debt provisions spurred by the global fiscal crisis and default problems affected growth in their net profits for the first time in nearly six years, according to analysts.

Although they are expected to unveil much higher earnings in the fourth quarter of 2009, the combined net income of the country's commercial banks could be somewhat equivalent or lower than their 2008 profits, they said.

"Certainly, the banks' earnings in the fourth quarter of 2009 were much better than in the same period of 2008, when some of them reported a sharp decline and others recorded losses. Taking 2009 as a whole, I believe the performance was good but the net income will be either equivalent to the 2008 earnings or lower because of heavy provisions," said Ziad Dabbas, Financial Advisor at the government-controlled National Bank of Abu Dhabi.

"Our expectations are that there was a large increase in provisions in the fourth quarter as the banks close their annual accounts. My feeling is that banks are also making provisions against real estate loans on expectations the property sector is poised for a further decline. If this happens on a large scale, then the net profits of the banks could be even lower in 2009," said Dabbas.

Central Bank data showed the UAE's 22 national banks and 24 foreign units made record-high provisions through 2009 as they leaped by about 62 per cent from Dh19.7 billion at the end of 2008 to Dh32bn at the end of November. In October and November alone, their combined NPL provisions soared by around Dh4.2bn and experts believe they were sharply higher at the end of the year in line with instructions by the Central Bank.

Experts called 2009 as the year of provisioning as it involved the highest annual allocation of funds against bad debt. The surge followed the global crisis and a severe default problem involving the Saudi Saad and Algosaibi family businesses, to which some key UAE banks were exposed.

According to the experts, the sharp rise in provisions was the main reason for the decline of 16.3 per cent in the net income of the national banks in the first nine months of 2009 compared with the same period of 2008.

Balance sheets of 19 national banks listed on the official bourse showed their combined net profits dipped to about Dh15.687bn in the first nine months of 2009 from about Dh18.743bn in the first nine months of 2008. Their earnings also slumped by nearly 11.6 per cent to Dh4.831bn in the third quarter of 2009 from Dh5.47 billion in the third quarter of 2008.

As for the whole banking sector, the combined net income of the 24 national banks and 28 foreign units stood at a record Dh28.8 billion in 2008, including nearly Dh21.14 billion earned by national banks.

Figures by the Emirates Banks Association (EBA) showed the UAE's 52 banks recorded a growth of 7.9 per cent in net profits in 2008 compared with nearly 29.3 per cent in 2007 and 5.9 per cent in 2006. Growth in the profits hit an all time high of around 97.8 per cent in 2005, the figures showed.

"You can say 2009 was a good year for the banks in terms of general performance and operations. There could have been growth in their profits hadn't the banks been hit by default problems and forced to largely increase their loan loss provisions," said Zuhair Kiswani, Director of the Sharjah-based Al-Sharhan Securities, a key UAE investment and stock brokerage company.


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