Bank results reflect strong revival in operating environment
Dubai: Financials results of leading UAE banks reflected a strong revival in economic activities supporting asset growth, profitability and asset quality of banks.
With economic growth starting to pick up again on the back of higher oil prices and production, as well as increased government spending in Abu Dhabi and higher infrastructure spend in preparation for Dubai Expo 2020, banks are seeing a revival in credit demand from corporates, government and government related entities (GREs), although the overall retail loan growth remains anaemic.
Most UAE banks reported strong growth in profitability driven by improved loan yields from rising interest rates, decline in cost of risk supported by improving asset quality and provision levels after the IFRS 9 implementation remaining within guidance.
Most UAE banks reported strong profit growth driven by improved loan yields from rising rates, decline in cost of risk supported by improving asset quality.
Emirates NBD reported Dh7.65 billion in net profit for the first nine months of 2018, up 24 per cent compared to the same period last year. For the third quarter, the bank reported a net profit of Dh2.63 billion, up 16 per cent compared to the Dh2.27 billion reported in the same period in 2017.
The increase in net profit was driven by asset growth, higher margins and reduced provisions, which helped offset an increase in operating costs. Net interest income increased 19 per cent year-on-year due to loan growth coupled with higher margins. “Emirates NBD delivered a strong nine-month net profit underpinned by higher net interest income on the back of loan growth coupled with an improvement in margins,” said Shayne Nelson, group chief executive officer of Emirates NBD.
Rise in ENBD’s 9-month profit
Dubai Islamic Bank (DIB) reported a net profit of Dh3.7 billion for the first nine months of 2018, up 12.1 per cent from Dh3.3 billion reported in the same period last year. For the third quarter of 2018, the bank reported a net profit of Dh1.26 billion up 9.5 per cent compared to Dh1.15 billon in the same period in 2017.
“The bank has constantly shown the ability to rapidly respond to changes in the economic environment leading to strong growth in profitability of 12 per cent year-on-year, crossing the $1 billion profit in the nine months of the year,” said DIB Group CEO, Dr Adnan Chilwan.
Reflecting the improving government spending, Abu Dhabi banks have reported a revival in profitability and asset quality. For the third quarter, First Abu Dhabi Bank (FAB) outperformed analysts’ expectations as it reported a 16 per cent jump in its net profits for the third quarter of 2018 to Dh3.02 billion and the net profit in the first nine months of 2018 at Dh9.08 billion, up 12 per cent year-on-year.
Rise in FAB’s third quarter net profit
Abu Dhabi Commercial Bank (ADCB) reported a 5 per cent year-on-year increase in its profits for the third quarter of 2018, as net interest income grew and impairment costs dropped. The bank reported Dh1.15 billion in profits for the quarter and Dh3.48 billion year to date, up 9 per cent year-on-year.
Analysts see the outlook for the UAE banking sector very strong, given the strong forecast for economic revival. The International Monetary Fund (IMF) in its new forecast increased its GDP forecast from 2 per cent and 3 per cent in 2018 and 2019, respectively, to 2.9 per cent in 2018 and 3.7 per cent in 2019. Improving macroeconomic environment has lifted optimism on banking sector performance.
“We are heavily overweight on the UAE banking sector, though net interest margin (NIM) expansion is less significant than in KSA as banks shore up their liquidity coverage ratio to net stable funding ratios (LCR/NSFR). We particularly like the Abu Dhabi consolidation play, with a 10 per cent weight in ADCB and 2.5 per cent weight in UNB. We continue to favour ADCB into the merger as we see significant upside from consolidation and limited downside should the transaction not go through,” said Jaap Meijer, head of Equity Research at Arqaam Capital.
Overall revival in profitability and stronger outlook was visible across most banks’ results. Commercial Bank of Dubai (CBD) reported a net profit of Dh843 million for the first nine months of 2018, up 26.8 per cent compared to the same period last year. For the third quarter of 2018, the bank reported a net profit of Dh282.29 million down 15 per cent.
While UNB posted a 7 per cent year-on-year increase in its net profit for the third quarter of 2018, net profits declined 7 per cent for the nine-month period of 2018 to Dh1.28 billion year-on-year.