An intense wave of bad debt provisioning allied with slackening domestic demand depressed the combined net earnings of the UAE's national banks by nearly 16.3 per cent in the first nine months of 2009.
But analysts expect the decline will be offset by higher profits in the fourth quarter as a result of better economic conditions, strong oil prices and an expected slowdown in provision build-up.
Balance sheets of 19 national banks listed on the official bourse showed their combined net profits dipped to about Dh15.687bn in the first nine months of 2009 from about Dh18.743bn in the first nine months of last year.
Their earnings also slumped by nearly 11.6 per cent to Dh4.831bn in the third quarter of 2009 from Dh5.47bn in the third quarter of 2008.
The balance sheets showed 10 of those banks reported lower earnings in the first nine months while eight recorded higher profits and one gave no results.
In the third quarter, nine banks saw their profits decline while nine reported higher earnings. Ajman Bank again recorded losses during that period. In contrast with their earnings, the combined assets of the 19 banks swelled by about 7.3 per cent to Dh1,244bn at the end of September 2009 from nearly Dh1,159bn at the end of September 2008, the report showed.
Emirates NBD maintained its position as the largest bank in terms of assets, which peaked at Dh291bn at the end of September compared with about Dh282bn at the end of September last year.
It was followed by National Bank of Abu Dhabi (NBAD) and Abu Dhabi Commercial Bank (ADCB) with assets of Dh185bn and Dh158bn respectively.
A breakdown showed Emirates NBD recorded the highest profits of Dh3.164bn in the first nine months although they were lower than the Dh3.666bn earnings achieved in the same period of last year. The government-controlled NBAD came second in terms of size of profits, which stood at Dh2.59bn in the first nine months of 2009 compared with Dh2.526bn in the first nine months of 2008.
First Gulf Bank (FGB) reported the third highest income of Dh2.456bn against Dh2.333bn in the same period. The figures showed Investbank and the National Bank of Umm Al Quwain recorded the highest profit increase of 38 and 37 per cent respectively. Emirates Islamic Bank and Dubai Islamic Bank recorded the largest fall of around 68 and 35 per cent respectively. "I think we will see much better performance by the UAE banks in the fourth quarter of this year than in the fourth quarter of last year," said Human Al Shamma, senior financial analysts at the Abu Dhabi-based Al Fajr Securities, one of the largest investment and stock brokerage firms in the UAE.
"The reason is that the pace of provisioning against non-performing loans is slowing down and the fourth quarter of last year was one of the worst periods for the banks because of the global economic crisis. This means that the overall earnings of the banks in 2009 could be almost equivalent to those in 2008."
Central Bank figures showed NPL provisions by the country's 52 banks peaked at nearly Dh3.9bn during the third quarter of this year to bring the total allocations for bad loans to Dh27.8bn at the end of September. Additional allocations boosted the provisions to Dh29bn at the end of October.
The provisions in the third quarter were nearly double the Dh2.1bn allocations set aside by banks for non-performing loans in the second quarter and almost equivalent to the total provisions made during the first half of 2009. Banks have stepped up provisioning in line with Central Bank instructions to offset their exposure to the troubled Saudi Saad and Algosaibi firms.
Analysts said the UAE banks performed well in the third quarter in terms of operations but their net income was shopped off by high provisions. "I think the UAE banks will be in a better shape in the fourth quarter of this year compared with the fourth quarter of last year. I cannot speculate on the exact performance but for 2009, I believe it will not be better than 2008," said Zuhair Kiswani, Director of the Sharjah-based Al Sharhan Securities. – Emirates Business 24|7
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