Abu Dhabi: Trend to lend

The four largest banks in Abu Dhabi reported an increase in annual profits for 2011 and, in two cases, have substantially exceeded analysts’ expectations. Meanwhile, lending in the UAE overall was up in 2011 and is expected to continue through 2012, with growth being driven in part by retail banking, including loans to small and medium-sized enterprises (SMEs).

In January 2012, the National Bank of Abu Dhabi (NBAD), the emirate’s largest bank, reported operating profits of Dh5.3bn ($1.44bn) for 2011, up around 6.5% over the previous year, while top-line revenues increased by 10%. Net profits (after impairments and taxation) amounted to Dh3.7bn ($1bn), representing a rise of less than 1% compared to 2010. In a public statement, Michael Tomalin, the group CEO at NBAD, attributed the flat net profits to the bank’s “particularly cautious” stance regarding provisions.

Meanwhile, the bottom line at the emirate’s second-largest bank, Abu Dhabi Commercial Bank (ADCB), was helped by falling impairments on bad debts, which declined to about Dh2.1bn ($571.63m) in 2011 from Dh2.9bn ($789.39m) in 2010. Net profits rose sharply from Dh391m ($106.5m) to Dh3bn ($816.61m), more than Dh1bn ($272.2m) above analysts’ forecasts. Lower provisions boosted the bank’s profitability, as did the Dh1.3bn ($353.87m) earned from the sale of a minority stake in Malaysian lender RHB Capital.

Another lender that beat expectations in 2011 was First Gulf Bank (FGB), the largest privately owned bank in Abu Dhabi. Net profits in 2011 amounted to Dh3.7bn ($1bn), an increase of 8% over the previous year. In a public statement, Andre Sayegh, the CEO at FGB, said that non-performing loans at the bank continued to decline on both the corporate and retail side. The lender also recently floated a five-year, $500m sukuk. The Islamic bond was priced at 4.05%, less than the 4.72% yield on a five-year sharia-compliant note issued in January 2012 by Dubai-based Emirates Islamic Bank, underscoring the market’s confidence in FGB.

Profits were also up at the emirate’s fourth-largest lender, Union National Bank (UNB). UNB’s net profits in 2011 amounted to Dh1.5bn ($408.31m), an increase of 11% over 2010, despite a 65.8% increase in provisions over this period. Net loans and advances grew to Dh57.6bn ($15.68bn) as of December 2011, a moderate increase of 1.8% over the Dh56.6bn ($15.41m) recorded at the end of 2010.

Meanwhile, overall lending in the UAE grew at a rate of 4.2% between December 2010 and November 2011, with sector-wide loans and advances reaching Dh1.1trn ($272.2bn), according to the latest data from the Central Bank of the UAE. This represents an improvement over 2010, when total lending rose by 1.3%, although it is still small compared to the annual growth rates of more than 30% that were achieved between 2005 and 2008.

Looking ahead, banks in the UAE and the GCC more broadly are expected to focus on lending to SMEs in 2012 in order to boost returns, according to a 2011 survey by global consultancy Accenture. In the past, SMEs in the UAE have faced challenges in obtaining credit, suggesting that this segment represents substantial market potential. Moreover, increased lending to smaller businesses would be in line with the policies of the Central Bank of the UAE, which has taken steps to encourage loans to SMEs.

Many banks already have special programmes in place for lending to smaller businesses. For example, NBAD opened its first dedicated business banking centre in 2010 and has signed a memorandum of understanding with the Khalifa Fund for Enterprise Development to process loan applications for eligible borrowers which the fund refers to it, while ADCB runs six dedicated SME centres and employs a team of relationship managers to service its SME clients.

More recently, in January the Dubai Chamber of Commerce and Industry (DCCI) announced that NBAD would offer financial facilities of up to $100m to SMEs based in Dubai, a programme that could benefit more than 1000 companies, the DCCI said in a statement. According to the chamber, the bank will offer competitive rates, as well as grant loans within three working days.

“The signing of this agreement with NBAD to support the financing of SMEs is very timely, as the sector is underserved by the financial services industry and this partnership will allow us to be accessible to small businesses, while providing liquidity to the sector drive for the overall growth of entrepreneurship in the emirate,” said Hamad Bu Amim, the director-general of the DCCI.

SMEs are likely to be a strategic priority for local banks in the long run, as financial institutions seek to diversify their sources of income. Indeed, while the emirate’s lenders performed well in 2011 – particularly in the context of a difficult year for the global banking sector and regional political instability – projected growth for SMEs in the UAE suggests that this could be an important market segment looking ahead.

Read Next:

In UAE: Abu Dhabi

Launch of diversification strategy pushes Abu Dhabi towards...

Abu Dhabi has moved ahead with plans to bolster the emirate’s non-oil economy following the launch of a Dh50bn ($13.6bn) programme aimed at fast-tracking economic growth and social development....

In Financial Services

Michael Gorriz, Group Chief Information Officer, Standard Chartered

How would you assess the potential of digital banking to boost financial inclusion in developing economies?

Latest

Dubai, the region’s financial hub, doubles down on fintech

A series of recent developments have underlined Dubai’s commitment to strengthening its position as a regional financial technology (fintech) leader.