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29 November 2023

UAE banks perform better in fourth quarter

UAE banks have largely increased their (NPL) provisions Ziad Dabbas. (EB FILE)

By Nadim Kawach

UAE banks are set to unveil much better results in the fourth quarter of 2009 despite a surge in their bad debt provisions because of regional default problems and stricter Central Bank rules, analysts said yesterday.

The surge in earnings compared with the fourth quarter of 2008 could offset a drop of more than 16 per cent in the national banks' income in the first nine months of last year and allow them to achieve similar results as in 2008.

"UAE banks have largely increased their non-performing loans (NPL) provisions over the past few months and this have adversely impacted their net profits. Provisions are expected to have increased further in the fourth quarter because of the end of the year and strict Central Bank instructions that all of them should exit the year with clean balance sheets without any hidden assets," said Ziad Dabbas, financial adviser at the National Bank of Abu Dhabi.

"The record provision allocations last year were a result of the Saudi default problems and the downturn in the real estate sector in the UAE. They picked up in the last quarter because banks usually close their accounts and step up provisioning. All these developments will impact their performance but I am sure that their net income was much better than in the fourth quarter of 2008."

Central Bank data showed the UAE's 22 national banks and 24 foreign units made record high provisions through 2009 as they leaped by around 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.

The surge in provisions, mainly due to a severe default problem involving the Saudi Saad and Algosaibi family conglomerates, was the main reason for the decline of around 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 around 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 Dh5.47bn in the third quarter of 2008.

"It is still early to specify the exact performance of UAE banks for the fourth quarter of last year as most of them do not release their results before mid January," said Zuhair Kiswani, Director of the Sharjah-based Al Sharhan Securities, a key UAE investment and stock brokerage company.

"But I can tell you that they have performed much better because the fourth quarter of 2008 was one of their worst financial periods. Most of them either reported a sharp drop in earnings or losses because of the global crisis."

Kiswani said the banks could have performed even better had they not been exposed to default problems and forced to build up massive provisions.

"Some banks could report slight rise in their profits because of high provisions but others are expected to record a sharp increase. I think we are going to see a growth of 10-25 per cent in the banks' net earnings in the fourth quarter and this means that 2009 could be more or less as 2008 in terms of net profits."

National banks in the UAE netted around Dh19.91bn in 2008, nearly 6.4 per cent higher than their 2007 earnings of Dh18.7bn. A large part of the 2008 earnings was made in the first half, which is dubbed by experts as a boom period for the financial sector in comparison with the second half, when most sectors were jolted by the global financial turmoil.


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