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29 November 2023

UAE banks poised for lower income this year

By Nadim Kawach

UAE banks boosted their 2008 net earnings by more than 10 per cent but their performance is expected to record negative growth in 2009 for the first time in many years due to the global financial distress, experts said yesterday.

Despite poor results in the fourth quarter, the combined net profits of the country's 52 banks last year are expected to have exceeded their record earnings of around Dh24.4 billion in 2007, they said.

"I expect the collective net profits of the UAE banks to be higher by at least 10 per cent in 2008 compared with the previous year and they could have swelled further had not it been for their poor performance in the last quarter," said Ziad Dabbas, Financial Advisor at the National Bank of Abu Dhabi (NBAD).

"As for 2009, our expectations are that the profits will be lower than in 2008 because the global crisis will have a stronger impact on them. These effects include lower liquidity, the decline in property prices, minimal growth in their loans and the sharp fall in equity prices. I believe the positive profit cycle that has started in the banking sector over the past years is now over."


Results by eight UAE banks that have released their 2008 balance sheets showed their net earnings swelled by around 7.8 per cent over 2007 despite poor performance in the fourth quarter and a sharp drop in earnings by some of them.

The combined net profits of the eight, including three of the largest UAE banks, increased to around Dh14.22 billion last year from Dh13.18bn in 2007.

Their combined assets jumped by nearly 22 per cent to around Dh847bn from Dh692bn in the same period.

The rise in profits was a result of a sharp growth in the income of the government-controlled NBAD and First Gulf Bank, which both reported a collective profit increase of more than Dh1.5bn.


But two other major banks – Emirates NBD and the Abu Dhabi Commercial Bank (ADCB) – reported a sharp drop in earnings mainly because of the global credit crisis and massive write-downs, according to their balance sheet.

Emirates NBD, the largest UAE bank by assets, said its net income dived to around Dh3.68bn in 2008 from Dh3.95bn in 2007 but reported its assets leaped to nearly Dh82bn from Dh253bn. Its total income also jumped by around 19 per cent to Dh8.4bn last year.

"The write-downs and impairments reflect market-wide devaluation of equity and fixed income markets and increased market risk premiums," it said.

The year's income growth was primarily driven by a continued strong performance in loans and deposits, strong fees and commissions income and effective cross selling and productivity initiatives."

The ADCB, another government-controlled institution, was hit harder as its net earnings plunged by nearly 32 per cent to Dh1.36bn in 2008 from around Dh2.08bn in 2007, according to its balance sheet.

But the bank noted total income increased by16 per cent to Dh4.42bn while operating profits before provisions rose by 3.6 per cent and core income, excluding extraordinary items and before provisions, grew by seven per cent.

Total assets shot up by around 39 per cent with net loans and advances and customer deposits soaring by 44 and 48 per cent respectively.

Another bank that reported lower profits for 2008 was the Sharjah Islamic Bank (SIB) while those recorded higher income were Union National Bank, the Abu Dhabi Islamic Bank (ADIB) and the National Bank of Ras Al Khaimah (NBRak).

"Initial information we have received from the market showed the profitability of the UAE banking sector in 2008 was better than in 2007," said Jamal Ajjaj of Al-Sharhan Securities. "As for this year, of course the impact of the global credit crisis will be more pronounced and this could depress the banks' earnings."


According to Dabbas, many banks in the UAE had to boost provisions to make up for loss in their overseas assets because of the global crisis while others have suffered from a sharp decline in their share prices.

"There was a big decline in the value of assets of many banks in the last quarter while some banks have suffered losses from their investments in global market. But don't forget that some major banks in the country have not reported any losses. This means they have achieved higher profits through 2008 and I believe total profits of the sector could be above Dh26bn."

The UAE's 24 national banks and 28 foreign units recorded a 23 per cent rise in their net income in 2007 over their 2006 profits of Dh19.7bn.

The record earnings in 2007 was a result of a sharp growth in their operations in the region amidst an economic and oil boom, a surge in personal loans, and strong demand for credits in the construction and other sectors.


Experts said the banks escaped the global credit crunch because of measures taken by the Central Bank and the Federal government to offset liquidity shortage by offering Dh120bn in emergency funds for banks in the form of loans and deposits and by guaranteeing deposits for three years.

Besides the global crisis, UAE banks were jolted by the exit of massive funds that had been deposited by international currency speculators in the previous year in anticipation of a Gulf currency appreciation against the US dollar. Bankers estimated more than Dh190bn exited the UAE through 2008.

"I agree that many banks resorted to increasing their provisions to offset their losses and the decline in the value of some of their assets. This of course will adversely affect their profitability despite their good performance last year," said Humam Al Shamma, an expert at Al Fajr Securities in Abu Dhabi.

"According to initial information, the combined profits of the UAE banks grew by around five to 10 per cent in 2008 and I believe this is a very good result considering the impact of the global financial crisis on banks worldwide."

Central Bank figures showed the UAE banks had steadily increased their provisions against non-performing loans since mid 2007, when they stood at around Dh19.2bn. They swelled to nearly Dh20.9bn at the end of 2007 and peaked at about Dh22bn at the end of June.


The Central Bank has not yet provided data on those provisions and on lending by the banks for the second half but its June figures showed their combined deposits stood at around Dh833bn at the end of June while their credits to residents and non-residents soared to an all time high of Dh889bn, exceeding deposits for the first time by a ratio of 1.06.

The report showed there was a rapid growth in domestic credits in the first half as they jumped by around 24 per cent at the end of June.

Real estate mortgage loans rocketed by around 50 per cent to record one of their highest growth rates in the country's history. From around Dh58.8bn at the end of 2007, they soared to Dh87.5bn at the end of June.

"As far as I know, all those developments and strong government support in 2008 allowed the UAE banks to have a good year in terms of operations," said Zuhair Kiswani, Director of Al Sharhan Securities.