Sunday, Jul 19, 2015

Dubai: The first-half results of UAE banks announced so far indicate a normalisation of risks to asset quality and resilient growth in both deposits and loans in the face of a projected moderation in economic growth due to sharp decline in oil prices.

According to various projections, despite the oil price decline, the UAE economy is expected to grow at a relatively healthy rate of 3.5 to 3.8 per cent in 2015, lower than the 2014 growth of 4.5 per cent. But analysts say banking sector assets and profitability growth will largely remain unaffected, due to the intrinsic strength of bank balance sheets.

Early first-half results showed that banks in general have withstood the pressures of an oil price decline and potential risks to balance-sheet health and profitability.

Emirates NBD (ENBD), the largest bank in the UAE by total income and branch network, reported a net profit of Dh3.3 billion for the first half of 2015, up 41 per cent compared to the first six months of 2014. ENBD’s second-quarter net profit was up 26 per cent year on year Dh1.65 billion, though the growth was flat quarter on quarter.

The bank’s Islamic banking arm, Emirates Islamic, has also reported a 97 per cent increase in profit for the same period.

ENBD’s strong operating performance was helped by an increase in both net interest income and non-interest income, a modest increase in costs and a lower impairment charges.

“Our prudential balance sheet offers protection against future volatility in the global financial markets whilst providing a strong foundation for growth,” said Shayne Nelson, Group chief executive officer of Emirates NBD. “We remain cautiously optimistic for the remainder of 2015.”

The bank’s total income for the first half grew by 7 per cent to Dh7.6 billion. Net interest income grew 9 per cent to Dh5 billion due to growth in retail assets and a lower cost of funds. The improvement in net interest income is attributed to an improved asset mix due to growth of Islamic and retail assets and a lower cost of funds helped by current and savings accounts (Casa) growth, the bank said in a statement.

“The key positives in the second-quarter results included healthy loan growth at 3 per cent quarter on quarter, [the] fastest pace in more than six quarters, decent fee-income generation [of] 8 per cent year-on-year, strong cost control measures with [a] cost-to-income ratio at 31.2 per cent well below [a] long-term management target of 33 per cent,” Taher Safieddine, an analyst at Shuaa Capital wrote in a note.

Mashreq, another Dubai-based bank reported a healthy 11.6 per cent growth in net profit to Dh1.3 billion for the first six months of 2015. The bank’s operating income was up 5.7 per cent year-on-year at Dh3 billion at the close of the first half of the year driven by strong growth in net interest income, supported by a stable increase in loan volume and net interest margins.

“The second quarter presented opportunities that helped us maintain our trajectory of growth. Customer deposits increased by 10 per cent to reach Dh75.3 billion; operating income is up 5.7 per cent year-on-year to Dh3 billion driven by strong growth in net interest income, which was up by 12.7 per cent year on year,” said Abdul Aziz Al Ghurair, CEO of Mashreq. “This was on the back of 4.5 per cent year-on-year increase in loan volume and stable net interest margins.”

Overall healthy growth in assets and profits in the banking sector was reinforced by the results of two other banks such as United Arab Bank (UAB) and National Bank of Fujairah (NBF).

NBF’s net profits were up 26.7 per cent to Dh303.6 million for the first half of 2015 compared to Dh239.5 million in the corresponding period of 2014. The bank reported a healthy 12.8 per cent growth in loans and advances to Dh18.4 billion from Dh16.3 billion at 2014 year-end, and up by 24.5 per cent year on year from June 30, 2014.

Customer deposits were up 8.5 per cent to Dh19.5 billion from Dh17.9 billion at 2014 year-end, and up by 17 per cent from June 30, 2014.

UAB’s first-half net profit was up 5 per cent at Dh344 million for the first half of 2015. The bank’s total income for the period rose 3 per cent to Dh696 million, aided by continued strong performance in net interest income, up 7 per cent compared to the first half of 2014.

By Babu Das Augustine Banking Editor

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