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UAE bank profits up, courtesy strong oil

Robust economic conditions supported by strong oil prices and phenomenal growth in the retail banking business has helped the surging profits of UAE banks. Significant long-term developments such as the real estate boom and ongoing infrastructure investments are also helping the banking sector boom.

“Higher oil prices and sustained growth in many sectors, especially construction is having a knock on effect which is driving the growth across the wider economy resulting in improved performance in both commercial and retail banking,” said Abdul Aziz Al Ghurair, Masreqbank CEO.

Mashreqbank Group's net profits increased by 22.3 per cent to Dh543 million in the first three quarters of this year. While the assets increase by 33.5 per cent to Dh31.5 billion, the customer deposits increased by 29.4 per cent.

In a recent review of the Gulf's banking sector, London-based Economist magazine said, “Retail banking is a fairly new phenomenon in the region...The attractions of retail banking are plain. It is much less risky than corporate lending,” observations to which many bank CEOs in UAE agree.

The growth in the retail business is reflected in the significant increase in fee-based incomes of most banks. The results of UAE banks so far confirm the impact of the retial business in the strong financial performance of the UAE banks. Emirates Bank Group's net profits for the first nine months were up by 41.3 per cent at Dh653 million. “In the third quarter all the major businesses of the Group have shown strong profit and asset growth as a result of successful transformations, particularly in retail banking business which has witnessed an expansion in its alternative delivery channels and new offerings to customers,” said Anis Al Jallaf, Managing Director and Chief Executive Officer of Emirates Bank Group.

Total assets of the group have reached over Dh36.9 billion, growing 15.9 per cent while the loans and advances increased by 21.6 per cent. The Q3 bank results also point to an across the board gain for the sector with almost all banks reporting significant gains in their bottomlines. In the third quarter, Abu Dhabi Commercial Bank's net profits were up by 41 per cent at Dh216.8 million. The net profits for the first nine months increased to Dh520.7 million from Dh428.1 million for the same period last year.

National Bank of Abu Dhabi, the largest bank in the country reported a 35 per cent increase in net porfits to Dh805 million for the first nine months of the year. For the third quarter of the year, profits were up by 50 per cent on the corresponding quarter last year.

“The strength of the local stock market contributed to exceptional results in the bank's asset management business,” said Michael Tomalin, Chief Executive of NBAD. National Bank of Dubai (NBD) reported Dh622 million net profits for the first nine months of 2004, down by more than 10 per cent due to lower exceptional income arising from sale of securities. The income from sale of securities this year was Dh106 million at the close of the third quarter while it was Dh208 million during the same period last year.

The net profit from Bank's core businesses increased by Dh32 million to Dh 517 million at the close of third quarter this year from Dh485 million during the first three quarters last year. Total assets of the bank increased by 3.3 per cent to 36.8 billion from Dh35.6 billion at the close of last financial year.

Small and medium sized banks too have done extremely well during this year. The Abu Dhabi based First Gulf Bank has announced Dh156.5 million net profit for the first nine months of this year, up by 92 per cent compared to the same period last year.

The bank's total assets increased by 28 per cent to Dh8.3 billion, and customer deposits increased by 23 per cent to Dh6.1 billion.

“In line with our strategy to deliver consistent growth, our bank has been delivering solid performance, year after year. Our expansion plans are the result of solid foundations and business focus. One of the top priorities for the bank is to remain a major contributor to the development of the domestic economy,” said Shaikh Mansour Bin Zayed Al Nahyan, First Gulf Bank Chairman.

The bank's net interest income reached Dh175.4 million, up by 41compared to the same period last year while the remaining income increased 93 per cent to Dh116.3 million. The non-interest income ratio to the total income has increased to 40 per cent.

While the Investbank reported 53 per cent increase in net profits to Dh114.9 million, Bank of Sharjah's earnings for the first three quarters increased by 64 per cent to Dh95.5 million. The Union National Bank's net profits were up by 15.35 per cent during the first nine months at Dh316.29 million.

Analysts see the retail business expansion of many banks in the region will continue to deliver good results because of the relatively lower risk and tiny delinquency ratios for consumer loans. It is less than one per cent in the UAE compared to 2 to 3 per cent in the developed markets.