Coronavirus impact: Q1 profits of UAE banks hit by increased provisioning
'The banks' material decline in profitability primarily reflects the early effects of the coronavirus outbreak'
The UAE's top four banks' first-quarter fell by nearly one-third due to higher provisions.
The net profit of four largest banks - First Abu Dhabi Bank, Emirates NBD, Abu Dhabi Commercial Bank and Dubai Islamic Bank - fell 32 per cent to $1.6 billion (Dh5.87 billion) in Q1 2020 as compared to $2.3 billion in Q1 last year.
The four banks accounted for 74 per cent of the banking assets as of March 2020.
"The banks' material decline in profitability primarily reflects the early effects of the coronavirus outbreak and anticipation of higher credit losses, which prompted them to increase provisioning 222 per cent versus first-quarter 2019," Moody's Investors service said.
Emirates NBD first-quarter net profit dropped 24 per cent year-on-year to Dh2.1 billion, First Abu Dhabi Bank profit declined 22 per cent to Dh2.4 billion, Abu Dhabi Commercial Bank profits slipped 82 per cent to Dh209 million, and Dubai Islamic Bank profitability sank 18 per cent to Dh1.1 billion.
The four banks' combined return on assets was 1.0 per cent in the first-quarter, compared to 1.7 per cent in 2019. DIB's first-quarter return on assets was 1.6 per cent, followed by ENBD at 1.2 per cent and FAB at 1.1 per cent. ADCB's return on assets was 0.2 per cent.
Moody's expects the UAE's coronavirus pandemic-related containment actions, the broader global economic shock, significant drop in oil prices and a pre-existing cyclical and structural slowdown in the non-oil economy to materially weaken banks' asset quality and profitability.
"We expect provisioning requirements at the four UAE banks to increase during the coming quarters, with the banks' capitalization buffering upcoming credit losses," Moody's analysts said.
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