PHOTO
31 October 2016
By Shane McGinley
Profits of banks in the United Arab Emirates (UAE) have slumped by up to 20 percent this year, but the tougher operating climate has encouraged the industry to become more innovative and will help to “weed out” poor performers, the chairman of the UAE Bank Federation said.
“The banking sector has slowed down during this year, and we have seen in this year between 10 and 20 percent, depending on each bank, profit will come down,” Abdul Aziz Al Ghurair, who is also CEO of Mashreq bank, told reporters at a media event on Sunday.
Major UAE banks such as Emirates NBD and Dubai Islamic Bank reported flat profit results in the third quarter of this year, while Mashreq bank, Dubai's third-biggest lender by assets, posted a 24.8 percent fall in net profit during the same period, as the cost of serving bad loans weighed on its balance sheet. Analysts expect profitability will remain under pressure in the coming quarters ahead, Dubai daily Gulf News reported on Sunday.
Ghurair said he expected the banking sector performance in 2017 to be the same due to a general slowing of the economy as a whole.
“If we look at our industry now, be it a real estate developer, be it in the tourism, they have all seen a slowdown in trade,” he said.
The International Monetary Fund has forecast that low oil prices, coupled with a slowdown in tourism and trade levels, would see growth in the UAE slow to 2.3 percent this year, compared to 4 percent last year.
However, Al Ghurair said there are some positive aspects to the decline in economic growth.
“I think it is good that we don’t see always growth, because in continuous growth it creates complacency and it kills the innovation and the improvement… It will weed out the poor performer and produces only the better performer for the market.”
“If we compare UAE bank performance this year, we are far much better than the European, Far East (and) Japanese banks. We have done extremely well. Our problem is that we were spoilt, we got used to high return, high margin and our shareholders and customers once they only saw the prices go up, this is not sustainable, prices going up all the time,” he added.
Provisions to hit peak in 2016
The decreased growth has prompted lenders and the government to be more proactive in their dealings with bad debts and small companies struggling with repayments, he said. The UAE last week issued a decree announcing a new bankruptcy law, which is due to come into effect early next year.
Al Ghurair said the industry itself had already taken the initiative earlier this year to start tackling the issue of bad loans. Under a plan implemented by the banks federation, around 1,700 struggling small and medium-sized enterprises (SMEs) began renegotiating with lenders to reschedule around 4.5 billion dirhams ($1.22 billion) worth of outstanding repayments.
“Under the same umbrella we have worked out 2.5 billion dirhams of loans to large corporates to encourage banks not to take unilateral action, otherwise the customer will skip… Prior to March a lot of banks took legal action. Banks are willing to look for a workable solution. They are being reasonable and are willing to give it a try,” he said.
As a result of proactive initiatives like these, Al Ghurair said UAE banks would be able to start reducing the bad loans on their books and the provisions needed to cover them.
“Provisioning for banks will hit its peak this year and it will slow down next year, because we have these SME issues which have hit the banking system… I don’t expect higher provisions next year,” he said.
While provisions are likely to be more manageable, Al Ghurair said he expects overall growth in bank lending to decline this year to 3.5 percent from 4.5 percent last year.
© Zawya 2016
By Shane McGinley
Profits of banks in the United Arab Emirates (UAE) have slumped by up to 20 percent this year, but the tougher operating climate has encouraged the industry to become more innovative and will help to “weed out” poor performers, the chairman of the UAE Bank Federation said.
“The banking sector has slowed down during this year, and we have seen in this year between 10 and 20 percent, depending on each bank, profit will come down,” Abdul Aziz Al Ghurair, who is also CEO of Mashreq bank, told reporters at a media event on Sunday.
Major UAE banks such as Emirates NBD and Dubai Islamic Bank reported flat profit results in the third quarter of this year, while Mashreq bank, Dubai's third-biggest lender by assets, posted a 24.8 percent fall in net profit during the same period, as the cost of serving bad loans weighed on its balance sheet. Analysts expect profitability will remain under pressure in the coming quarters ahead, Dubai daily Gulf News reported on Sunday.
Ghurair said he expected the banking sector performance in 2017 to be the same due to a general slowing of the economy as a whole.
“If we look at our industry now, be it a real estate developer, be it in the tourism, they have all seen a slowdown in trade,” he said.
The International Monetary Fund has forecast that low oil prices, coupled with a slowdown in tourism and trade levels, would see growth in the UAE slow to 2.3 percent this year, compared to 4 percent last year.
However, Al Ghurair said there are some positive aspects to the decline in economic growth.
“I think it is good that we don’t see always growth, because in continuous growth it creates complacency and it kills the innovation and the improvement… It will weed out the poor performer and produces only the better performer for the market.”
“If we compare UAE bank performance this year, we are far much better than the European, Far East (and) Japanese banks. We have done extremely well. Our problem is that we were spoilt, we got used to high return, high margin and our shareholders and customers once they only saw the prices go up, this is not sustainable, prices going up all the time,” he added.
Provisions to hit peak in 2016
The decreased growth has prompted lenders and the government to be more proactive in their dealings with bad debts and small companies struggling with repayments, he said. The UAE last week issued a decree announcing a new bankruptcy law, which is due to come into effect early next year.
Al Ghurair said the industry itself had already taken the initiative earlier this year to start tackling the issue of bad loans. Under a plan implemented by the banks federation, around 1,700 struggling small and medium-sized enterprises (SMEs) began renegotiating with lenders to reschedule around 4.5 billion dirhams ($1.22 billion) worth of outstanding repayments.
“Under the same umbrella we have worked out 2.5 billion dirhams of loans to large corporates to encourage banks not to take unilateral action, otherwise the customer will skip… Prior to March a lot of banks took legal action. Banks are willing to look for a workable solution. They are being reasonable and are willing to give it a try,” he said.
As a result of proactive initiatives like these, Al Ghurair said UAE banks would be able to start reducing the bad loans on their books and the provisions needed to cover them.
“Provisioning for banks will hit its peak this year and it will slow down next year, because we have these SME issues which have hit the banking system… I don’t expect higher provisions next year,” he said.
While provisions are likely to be more manageable, Al Ghurair said he expects overall growth in bank lending to decline this year to 3.5 percent from 4.5 percent last year.
© Zawya 2016
