The growing level of non-performing loans has finally started to weigh on some of the UAE’s biggest banks after throwing some smaller rivals off kilter in recent quarters.
National Bank of Abu Dhabi (NBAD), the UAE’s biggest bank by assets, said yesterday that its fourth-quarter profit slid 25 per cent while Mashreq, the Dubai-based lender, said income in the last quarter of the year fell about 14 per cent, as the steepest drop in crude oil prices since the financial crash of 2008 takes its toll on business confidence.
Dubai Islamic Bank, the largest Sharia-compliant lender, bucked the trend however, with income for the period gaining 38 per cent as provisions during 2015 fell from the previous year.
NBAD’s net income fell to Dh1.03 billion in the fourth quarter from Dh1.37bn in the same period of 2014. Impairment charges, or money set aside to cover bad debts, more than doubled in the fourth quarter to Dh436 million compared to Dh200m in the same quarter of 2014.
NBAD‘s earnings for the fourth quarter fell well below the expectation of four analysts polled by Bloomberg, who had a mean estimate of Dh1.24bn.
During a conference call with reporters, NBAD’s chief executive tried to put a brave face on the setbacks, saying that the bank has been focusing on a “health over wealth” strategy and was upbeat about 2016 despite the growing headwinds from the collapse in oil prices and a slowdown in the global economy.
“We have a high-quality loan book, our international business is [the] differentiator and we have limited exposure to some of the more worrying sectors but we are also mature enough to realise that there is probably stress in this market,” said Alex Thursby.
As well as putting more money aside to take care of loans gone sour, NBAD said that its revenues also dropped in the fourth quarter as falling non-interest income and rising costs took a toll as declining oil prices put a damper on economic growth.
The price of oil, a key driver of growth in the UAE, has dropped more than 70 per cent since mid-2014 amid growing supplies and less demand from historic guzzlers such as China.
NBAD said the higher impairment charges during the fourth quarter were due to a mix of difficult operating conditions, concerns over the ability of small businesses to pay back debt and putting aside more cash to cover future non-performing loans.
Those concerns have been plaguing smaller banks such as the Sharjah-based United Arab Bank for months but are only now starting to creep into the larger banks.
Notable exceptions during this reporting season have been Emirates NBD and Dubai Islamic Bank. Emirates NBD, Dubai’s biggest lender by assets, said last week that its fourth-quarter profit rose 74 per cent as its provisions fell.
Mashreq said yesterday that net income fell to Dh556m during the fourth quarter from Dh644.3m in the same period the previous year as its impairment allowance shot up 48 per cent to Dh318m versus Dh215m in the same quarter the previous year.
Dubai Islamic Bank said that its profit in the fourth quarter increased to Dh1.03bn from Dh743.7m amid higher revenues. The bank did not break out net impairments for the fourth quarter.
Elsewhere, Sharjah Islamic Bank said that its annual profit last year rose 9 per cent. It did not give out its fourth-quarter earnings.
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