Sunday, May 01, 2016

Dubai: Leading banks in the UAE, with the exception of a few reported rising pressures on key performance indicators such as loans and deposit growth, asset quality and profitability in their first quarter results.

While the impact of tough operating conditions was visible across the sector, the first quarter numbers showed that leading Abu Dhabi based lenders were affected more as they reported double digit decline in their first quarter profits year on year basis.

National Bank of Abu Dhabi (NBAD) reported net profits of Dh1.27 billion for the first quarter of 2016, down 11 per cent compared to the first quarter of 2015, reflecting lower investment gains and higher provisions. The bank’s total assets were at Dh400 billion at the end of the first quarter of 2016, posting flat growth compared to the same quarter last year. Net loans and advances were at Dh200 billion was flat year on year. The net impairment charges in the first quarter of 2016 were Dh295 million, up 73 per cent compared to the same quarter last year.

“Given the local and international economic volatility, NBAD is prudent and conservative, prioritising the long-term health of the bank over any short-term gains. Owing to its deep capital buffer and healthy liquidity position, NBAD is in a strong position,” said Alex Thursby, Group Chief Executive of NBAD.

Non-performing loans

Abu Dhabi Commercial Bank’s (ADCB) first quarter net profit of Dh1.02 billion was down 18.4 per cent compared to Dh1.25 billion in the same quarter last year. Operating income during the first 3 months of the year was down 4 per cent year on year and up 5 per cent quarter on quarter.

Union National Bank (UNB) reported a 27 per cent decline in first quarter profits to Dh450 million compared to Dh615 million the first quarter of last year. The operating profit for the first quarter of the year was Dh551 million, a decrease of 19 per cent over the same period of prior year. The operating income for the three month period ended 31 March 2016 was down by 13 per cent to Dh813 million compared to the corresponding period of previous year.

During the first quarter, the ratio of non-performing loans and advances to gross loans and advances up-ticked to 3.7 per cent as at 31 March 2016 compared to 3.5 per cent at year-end 2015 with overall loan loss coverage at 102.7 per cent at the close of the first quarter. The impairment charge on financial assets during the first quarter of 2016 was Dh85 million compared to Dh57 million in the first quarter of last year. Increased cost of deposits resulted in bank’s net interest income decline 12 per cent to Dh623 million in the first quarter of 2016, with the net interest margin being impacted by 50 basis points to 2.63 per cent.

“2016 witnessed a soft start to the year as global economic activity moderates and the operating environment continues to readjust at the back of a decline in oil prices. The local banking sector is facing headwinds, which also saw some impact on the group’s profitability,” said Mohammad Nasr Abdeen, Chief Executive Officer, UNB.

Net customer financing

Among Abu Dhabi banks, Abu Dhabi Islamic Bank (ADIB) First Gulf Bank (FGB) were relatively resilient to both regional and global economic headwinds.

ADIB reported a net profit of Dh482 million for the first quarter of 2016, up 6.9 per cent compared to the same period in 2015. The bank’s total assets increased by 4.5 per cent year on year to Dh119.2 billion in the first quarter. Customer deposits increased 9.6 per cent to Dh96 billion, and net customer financing grew by 8.3 per cent to Dh78.3 billion. Total non-performing accounts as a percentage of gross customer financing reduced to 4 per cent from 4.2 per cent a year earlier.

“Despite very challenging conditions ADIB has delivered a sustainable level of financial performance in the first quarter of 2016 with steady growth in revenues and net profits,” said Tirad Al Mahmoud, Chief Executive Officer of ADIB.

FGB’s first quarter net profits were down 6 per cent to Dh1.33 billion compared to Dh1.42 billion in the first quarter of 2015. FGB Group net profit was above 60 per cent of revenue, largely due to operating efficiency, which is reflected by a cost-to-income ratio at 20.3 per cent. Provisions against impaired loans at Dh376 million was up 1 per cent year on year and down 26 per cent quarter on quarter. The bank maintained strong credit quality with non-performing loans (NPL) ratio at 2.6 per cent and provision coverage ratio at 109.8 per cent.

Factbox: Tightening lending standards

Dubai: The latest credit sentiment survey from the Central Bank of the UAE showed a significant increase in demand for credit despite the challenging economic environment. In March, 45 per cent of banks saw an increase in demand for credit from businesses. Meanwhile, banks continued to tighten lending standards to all firms, but on a more modest basis than in previous quarters.

Around 80 per cent of the banks surveyed cited lower oil prices as a factor behind their tightening of lending standards to small and medium-sized enterprises (SMEs) and large firms. Low oil price environment seems to be having a smaller effect on banks’ perception of risk among government-related entities, with just above 30 per cent citing low oil prices as a factor in tightening lending standards to borrowers. Banks have been particularly cautious in their lending to SMEs, but have recently undertaken a number of initiatives to contain non-performing loans in that portion of their loan books, including a recent agreement to facilitate loan restructuring across multiple banks.

By Babu Das Augustine Banking Editor

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