UAE banks chopped nearly Dh3 billion off their balance sheets for non-performing loans (NPL) in November, their highest monthly bad debt provisions in many years, Central Bank data showed yesterday.
From Dh29bn at the end of October, provisions for NPLs surged to around Dh32bn at the end of November, the bank said.
The allocations in November were the biggest bad debt provisions to be made by the country's 24 national banks and 28 foreign units in a single month in many years as such allocations have averaged just around Dh1bn a month over the past year and largely below that level in previous years. The increase brought to nearly Dh12.3bn the total NPL provisions made by the banks in the first 11 months of 2009, the report showed.
It followed Central Bank instructions to the 52 commercial banks to bolster their provisions in the wake of the global financial turmoil and a severe debt default crisis involving the Saudi Saad and Algosaibi family businesses.
Analysts said the sharp rise in provisions in November was because most banks normally boost such allocations towards the end of each financial year.
"The reason is that the year is nearing its end and the boards of many banks meet to decide on such provisions before the end of the year and the close of their accounts," said Zuhair Kiswani, Director of the Sharjah-based Al Sharhan Securities, a key UAE investment and brokerage firm.
"At the end of each year, you can see that provisions for NPLs start to rise quickly. I expect such provisions to record even a bigger rise in December."
Experts considered the banks' drive to build up provisions as a sound move that will strengthen their financial position and protect shareholders and investors.
"Of course, this is a very good policy because it gives protection to the shareholders and reassures investors and depositors… such measures also allow banks to avert further problems in the future and upgrade performance," said Ziad Dabbas, financial analyst at the National Bank of Abu Dhabi.
Kiswani said he believed most UAE banks would make higher net profits in the fourth quarter of 2009 despite swelling provisions.
"Compared with the fourth quarter of last year, most banks will perform better this quarter because last quarter was one of their worst financial periods," he said. Heavy bad debt allocations allied with slackening domestic demand depressed the combined net earnings of the UAE's national banks by 16.3 per cent in the first nine months of 2009, according to their balance sheets.
But analysts expect the decline to be partly offset by higher profits in the fourth quarter as a result of better economic conditions, strong oil prices.
Balance sheets of 19 national banks listed on the official bourse showed their total net profits dipped to around Dh15.68bn 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 Dh5.47bn in the third quarter of 2008.
The balance sheets showed 10 of those banks reported lower earnings in the first nine months, while eight recorded higher profits and one gave no results.
"I think the banks' performance in the fourth quarter of this year will be far better than in the fourth quarter of last year," said Human Al Shamma, senior financial analysts at Fajr Securities.
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