UAE banks to witness better resilience in margins in Q4

Banks are likely to see increased provisions due to the mandatory 50 per cent coverage requirement on Saad and Algosaibi group exposures. (REUTERS)

UAE banks are likely to record better than expected resilience in margins in Q4 results, according global financial services company Credit Suisse, which has also estimated aggregate provisions by the banks at Dh3.5 billion.

In their earlier estimates, analysts had told Emirates Business that aggregate specific provisions for UAE banks were likely to increase in the fourth quarter due to weakness in asset quality and several other factors.

“Margins are likely to be more resilient than initially expected,” said analysts at Credit Suisse. However, the increase from interest income could be offset by rising credit costs, they said.

According to Credit Suisse, banks are likely to see increased provisions due to the mandatory 50 per cent coverage requirement on Saad and Algosaibi group exposures.

Provisions could go further up if the proposed change in non-performing loan (NPL) classification norm from 180 days to 90 days on overdue accounts takes place in Q4, it said.

“Provisioning requirements will run high, in some cases higher than in 2009, depending on the type of exposures some banks have,” Naveed Ahmed, Senior Financial Analyst, Research Group, Global Investment House, told Emirates Business.

Increased provisions, in the long run, would help `banks improve their asset quality, analysts said.

According to the Central Bank data, specific provisions for NPLs at the end of December were Dh32.6bn whereas general provisions stood at Dh10.7bn for more than 50 banks in the UAE. At the end of third quarter, specific provisions were Dh27.8bn.

Credit Suisse adjusted its aggregate earnings estimates for 2009 by a negative of two per cent and said fourth quarter results of the UAE banks, that are awaited, will bring more clarity on the growth pattern the sector follows.

“The financial sector in the region can be expected to see an improvement by the second half of the year. It will go thru a restructuring that will reflect on what happened in the past 12 months. We can hope for an improvement this year,” a senior banker said.

 

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