Large Provisions to Hit 6 UAE Banks’ Margins: CS

ABU DHABI - Leading investment bank Credit Suisse has predicted that earnings of the six national banks would be affected by heavy provisioning in the fourth quarter of the year 2009.

By Haseeb Haider

Published: Thu 28 Jan 2010, 11:15 PM

Last updated: Mon 6 Apr 2015, 4:51 PM

In a forecast on country’s top banks for the upcoming Q4 09 results, Credit Suisse predicted that margins would be more resilient than initially expected, but the increase from interest income is likely to be offset by rising credit costs.

The banks are likely to record high provisions in the quarter, due to the mandatory 50 per cent coverage requirement on Saad and Algosaibi group exposures. It said: ‘There’s even more downside risk to estimates if the proposed change in Non Performing Loans or NPLs classification norm from 180 days to 90 days on overdue accounts takes place in Q4,” says Mohamed Hawa, a banking analyst at Credit Suisse, in a report.

The investment bank estimated the aggregate Q4 ‘09 provisioning for the 6 UAE banks at Dh3.5 billion, up 47 per cent quarter-on-quarter.

On aggregate, CS said: “We are 35 per cent below consensus for the 4Q 2009E net income.” First Gulf Bank and Union National Bank remain its top picks in the sector.

The investment bank has decreased 2009 net income for the UAE’s six banks by two per cent due to an increase in provisioning estimates, but maintain forward earnings estimates on all the banks.

On Dubai Islamic Bank, or DIB, CS has increased 2009E net income by 10.3 per cent after accounting for an increase in net interest income on higher NIMs while lowering associate income and fee income.

CS has lowered loan provisioning estimate for Q4 to Dh330 million, double the Dh164 million in Q3 09, up from its previous estimate of Dh569 million.

On the largest national bank Emirates-NBD, the CS reduced its 2009E net income estimates by five per cent on marginally lower net interest income due to tightening NIMs and an increase in Q4 credit provisioning to Dh1 billion.

Moving forward, the Credit Suisse report feared a downside risk on provisions remains on the books, especially in the case of mega corporate difficulties in Dubai.

On the capital-based, the First Gulf Bank, the CS maintained 2009E net income relatively flat, lowering it by 0.7 per cent. Adjusting for a potential NPL classification shift from 180 days to 90 days, it increased estimated NPL ratio from 1.4 per cent in Q3 09 to 2.5 per cent in Q4 09.

However, it said this is likely to be offset by CS’s increase in estimates of ‘other income’ to adjust for high gain on sale of properties Dh181 million and high derivatives incomes Dh122 million in Q3 09.

The investment has increased 2009E net increase by 14 per cent on National Bank of Abu Dhabi, mainly due to an increase in net interest income and a decrease in NPL ratio.

The higher NII is likely to be driven by higher than expected loan growth up 15 per cent during 9 month 2009.

The bank said it has also decreased its NPL ratio to 2.1 per cent in 09E down from previous estimate of 2.25 per cent.

On Union National Bank, the Credit Suisse analyst forecast a cut in the net income by 2.5 per cent, after making provisions to cover Dh110 million exposure to Algosaibi group in addition to an Dh105 million for other risky loans.

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