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16 April 2024

Big projects to boost UAE banks’ 2008 bottom line

By Nadim Kawach



UAE banks are projected to set a new record in their performance this year as they take advantage of new mega projects and the launching of the GCC common market, experts said on Monday.


The country’s 22 national banks and 27 foreign lenders are expected to have netted in the excess of Dh24 billion last year as they went on a lending spree to quench the growing appetite of the local market for funds needed to cover massive projects in construction and other sectors, soaring trade, and expanding services. The banks’ lending activity could even gain momentum this year as the UAE is pushing ahead with giant projects exceeding $500 billion (Dh1,836bn) in five years, its trade is rapidly growing and the non-oil sector is making big leaps.


Other factors that will keep the banks in high gear in 2008 are their intensified plans to diversify investments and the enforcement of the common market in the six-nation Gulf Co-operation Council (GCC). “Since the UAE economy is expected to record high growth again this year, it is natural that our banks match that growth,” a UAE Central Bank source said. “You can say 2008 will be a better, if not the best, year for the UAE banks.”


Experts expect the net profit of the 49 banks to swell by between 10 per cent and 15 per cent in 2008 – this means the earnings could soar above Dh27bn, almost equivalent to their combined profit of Dh27.7bn during 2004 -05.


“Certainly, UAE banks will perform better this year because the economy is expected to maintain its growth momentum and there is a strong demand for loans,” said Mohammed Asumi, a well-known Gulf economist.


“There are a lot of large projects under way or to be carried out by both the public and private sectors. There is also rapid and steady growth in most non-oil sectors, mainly construction and trade. Another important factor is that the US sub-prime crisis has had little impact, if any, on the banking sector.” The UAE has emerged as one of the fastest growing economies in the Middle East over the past five years while its non-oil GDP recorded the largest leaps in the region, surging by between 10 per cent and 12 per cent between 2003 and 2007.


Trade was one of the main beneficiaries of that growth, jumping by an average 12 per cent during that period. In 2007, UAE’s exports of goods and services were expected to have climbed to a record $171.3bn and imports peaked at nearly $149.1bn, the highest in the Arab world.


Citing UAE Government estimates, the National Bank of Kuwait (NBK) last week said an estimated $500bn is expected to be spent in the next five years on more than 400 projects in the Emirates. Around 400 ventures worth over $110bn were also under way, according to NBK.


“All bankers expect 2008 to be better than 2007. You can say there will be an extended boom in the banking sector this year and the main reason is an expected surge in credits, which are a major source of income for all banks,” said Ziad Dabbas, sharedealing director at the National Bank of Abu Dhabi.


“The profit will grow by between 10 per cent and 15 per cent this year over 2007.”

Central Bank figures showed banks’ credits leapt to a record Dh645bn at the end of last September from around Dh598bn at the end of 2006. Bankers expect the figure to have exceeded Dh670bn at the end of 2007 and swell far above Dh700bn at the end of 2008.