UAE banks ride high on lucrative retail business

DUBAI - In the first week of December, two leading local banks, National Bank of Abu Dhabi (NBAD) and the Dubai headquartered Emirates Bank indicated that their net profits for 2004 will be more than Dh1 billion and Dh900 million respectively. Most bankers in the country are not surprised by such phenomenal growth; rather they are modest in their views.

By Babu Das Augustine

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Published: Tue 28 Dec 2004, 11:58 AM

Last updated: Thu 2 Apr 2015, 11:49 AM

“The economy is growing at an unprecedented rate, the funding requirements are huge that is getting reflected in the overall growth of the banking sector,” said Ahmed Humaid Al Tayer, chairman of the Emirates Bank Group.

Although the full year bank results are yet to be announced, bankers, analysts and investors have already done their number crunching and are expecting a bumper year for the industry.

The nine-month results had reaffirmed strong growth trends in the sector supported by oil windfall, real estate boom and the surging retail business. “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.

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 retail business in the strong financial performance of the UAE banks. Apart from strong margins, the small delinquency ratio of this segment compared to corporate banking has helped the UAE banks. The UAE in particular has small default ratio of less than 1 per cent compared to over three per cent in Europe.

In the corporate business, the year so far has been free from any major business failures or corporate defaults with the lone exception of an Abu Dhabi-based contracting company. This has helped many large banks from making huge provisions. Emirates Bank Group's net profits for the first nine months were up by 41.3 per cent at Dh653 million. The bank's annualised profits should be close to Dh900 million.

“While the bank has been reporting healthy growth in its margins, the quality of assets have been exceptionally good this year,” Al Tayer added. Total assets of the group had reached over Dh36.9 billion, growing 15.9 per cent while the loans and advances increased by 21.6 per cent at the close of third quarter.

National Bank of Abu Dhabi had reported a 35 per cent increase in net profits to Dh805 million for the first nine months of the year. 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.

Low interest rates on deposits and high lending rates had helped the banks to boost their margins. Although the interest rates are inching up, the industry is experiencing all the benefits of being at the lower level of the interest rate cycle with huge expansion in retail products such as personal loans, mortgage business, leverage for stock market investments and credit cards business.

In the third quarter, Abu Dhabi Commercial Bank's net profits were up by 41 per cent at Dh216.8 million. National Bank of Dubai (NBD) reported Dh622 million net profits for the first nine months of 2004.

Small and medium sized banks too have done extremely well during this year. Refocusing their business in recent years with emphasis on retail segment has helped many to improve their preformance. For smaller banks like RAKbank, over 83 per cent of their revenues have come from consumer banking. RAKbank had reported 42 per cent increase in profits during the first nine months while Investbank and Bank of Sharjah improved their results by 53 per cent and 64 per cent respectively during the first three quarters.



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