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06 December 2023

UAE banks' net earnings depressed

The main reason for this first major decline in many years is the high provisions taken by the banks against bad loans and assets Ziad Dabbas, Financial Advisor NBAD. (EB FILE)

By Nadim Kawach

UAE national banks performed well in 2009 but heavy provisions against bad debt triggered by the global fiscal distress and regional default problems depressed their net earnings by more than 20 per cent.

Balance sheets of 16 listed banks that have released annual financial results showed their combined net profits slumped to about Dh14.87 billion in 2009 from nearly Dh18.71bn in 2008, a decline of about 20.6 per cent.

Analysts said the drop was mainly a result of record provisions allocated by the banks against non-performing loans (NPL) in 2009 and expected their net earnings to rebound by at least 20 per cent in 2010.

"The main reason for this first major decline in many years is the high provisions taken by the banks against bad loans and assets," said Ziad Dabbas, financial advisor at the government-controlled National Bank of Abu Dhabi (NBAD).

"If you look at the banks' balance sheets, you will notice the operating income of many of them was better in 2009 than in 2008. This means the banking sector performed well last year but its net income was negatively affected by provisions, which were the highest in the UAE banking sector."

Central Bank figures showed the collective NPL provisions by the UAE's 24 national banks totalled about Dh12.9 billion in 2009, more than double the provisions of Dh4.5bn allocated in 2008.

Bankers said the bulk of those provisions in 2009 were made by national banks. At the end of 2009, total NPL provisions of the country's 52 banks stood at around Dh32.6bn compared with Dh19.7bn at the end of 2008. "If you add the 2009 provisions to the net profits of the banks, you will see their total income is far higher than that in 2008," said Dabbas.

His projections showed national banks could achieve an increase of more than 20 per cent in their net profits in 2010 because of expected lower provisions, a fall in interest rates on deposits and higher rates on loans.

"My expectations are that banks will perform much better this year than in 2009 because they will likely make lower provisions. Another reason is the decline in rates on deposits and the rise in rates on loans will naturally increase their profit margin. I think their net income could grow by over 20 per cent."

Balance sheets showed eight of the national banks that have released yearly results recorded lower income while seven made higher profits and one suffered from losses because of a surge in bad debt provisions.

A breakdown showed smaller banks in the UAE generally performed better than large banks in terms of profit growth, with Invest Bank reporting a surge of nearly 70 times. Other strong performers include National Bank of Umm Al Quwain, National Bank of Fujairah, Sharjah Islamic Bank, United Arab Bank and Dubai Commercial Bank (DCB).

First Gulf Bank was the only major bank to report a sharp rise in profits and the government-controlled Abu Dhabi Commercial Bank was the only national bank to record losses through 2009. The National Bank of Abu Dhabi, another giant government-controlled institution, reported a slight growth in income while that of Emirates NBD, the largest in the region in terms of assets, dipped by around nine per cent. The other banks with lower profits included Commercial Bank International, Emirates Islamic Bank, Abu Dhabi Islamic Bank, Dubai Islamic Bank, Mashreq Bank and Union National Bank.


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