UAE's Big 5 banks: Liquid and strong

Dubai - Solid performance underpinned by stable core income

The "core profitability" of five largest banks in the UAE, which posted a combined net profit of Dh6.8 billion in fourth quarter 2016, will remain solid over the next 12-18 months, Moody's said.
The solid performance of the five banks' - Emirates NBD, National Bank of Abu Dhabi, Abu Dhabi Commercial Bank, First Gulf Bank and Dubai Islamic Bank - was underpinned by stable core income from higher fee and commission income from retail and corporate lending services, the ratings agency said.
"We expect the five large UAE banks' core profitability to remain solid over the next 12-18 months," said Nitish Bhojnagarwala, Assistant Vice President at Moody's. "However, we anticipate pressure from rising funding costs as liquidity continues to tighten, and as banks increase their reliance on wholesale funding."
In the fourth quarter, overall net profitability was two per cent lower than in the previous quarter, and down five per cent from fourth quarter 2015, largely driven by decline in "other" income, including one-off gains, dividends from investments, and other non-recurring income.
Combined deposits at the five banks grew by two per cent to Dh991 billion relative to third quarter 2016 while their combined Tier 1 capital ratio increased to 17.3 per cent from 16.9 per cent the previous quarter.
By the first quarter 2017, Moody's expects a planned merger between NBAD and FGB to be completed. As of December 2016, these five banks accounted for a combined 62 per cent of the UAE banking system by total assets.
"In the fourth quarter, the banks' overall profitability was resilient, despite a decline in UAE's non-oil real GDP growth to 2.5 per cent in 2016 from a 2012 peak of 6.4 per cent, weighed by weak oil prices. The banks' fourth quarter performance was underpinned by higher fee and commission income from retail and corporate lending services. This helped offset a modest increase in operating expenses and higher funding costs, which rose to 1.2 per cent from 0.9 per cent a year earlier due to tightening liquidity conditions," Moody's analysts said.
In 2017, analysts anticipated pressure from rising funding costs as liquidity continues to tighten, and as banks increase their reliance on wholesale funding. "We also expect a rise in impairment charges driven by continued economic slowdown."
According to Shayne Nelson, Emirates NBD's group chief executive officer, the bank's operating performance was helped by further recoveries from legacy impaired loans which offset lower non-interest income.
"The group's liquidity position remained strong, bolstered by a stable and highly-diversified deposit base and the bank's ability to raise over Dh20 billion of term funding. Given the ongoing challenging environment, we will remain focused on controlling expenses and managing risks whilst ensuring that we continue to invest to support future growth."
"Our strong set of results is testament to the success of the strategic actions we have implemented in order to navigate volatile global operating conditions. As a result of our focused efforts to safeguard strong fundamentals, our net interest margin held up well in the fourth quarter and our liquidity position is always optimised and maintained within regulatory requirements," said André Sayegh, chief executive officer of FGB. NBAD, which reported net profits of Dh5.296 billion for the full-year 2016, said profits came on the back of strong underlying performance but were partially offset by several macro headwinds, including volatility in financial and currency markets driven by political and economic uncertainties.
"2016 was a solid year for NBAD. The bank generated top and bottom line growth in difficult market conditions and, in doing so, laid the foundations for the transformational merger with FGB," said Nasser Al Sowaidi, chairman of NBAD.
- issacjohn@khaleejtimes.com