Abu Dhabi Commercial Bank almost doubled its profit as its margins on lending widened.
ADCB, the capital's second-biggest lender, reported a 91.2 per cent increase in third-quarter net profitto Dh607.5 million (US$165.3m).
Profit margins on lending were "unbelievably strong", said Raj Madha, a financial analyst at Rasmala Investment Bank. "It was a great quarter for ADCB, but I have a question mark on the sustainability of these levels of revenue."
The bank's net interest income soared 48.6 per cent to Dh1.2 billion, driven by a sharp decline in interest expense.
ADCB is among the UAE banks that determine their interest rates for consumer borrowing and deposits using a formula that does not reflect declining interbank lending costs.
Interbank lending rates fell in the first half of the year and remained at historic lows throughout the third quarter.
"This quarter has seen another positive period for ADCB, with sustainability in our financial performance and delivering both top and bottom line growth," said Deepak Khullar, the bank's chief financial officer. The third quarter was the fifth consecutive quarter of earnings growth for ADCB. The third-quarter figure beat analysts' estimates of Dh332m.
But Tirad Mahmoud,the chief executive of Abu Dhabi Islamic Bank (ADIB), sounded a note of caution yesterday on the deteriorating local and regional economy as the bank reported a third-quarter profitof Dh319.1m, 1.5 per cent higher than in the same period last year.
Many of the UAE's lenders, including Emirates NBD, have made substantial provisions during the past three months against fallout from the European debt crisis as the outlook for the world economy darkens.
"The UAE may face another down cycle in the credit environment triggered by the prevailing negative global sentiment and its impact on the entire region," Mr Mahmoud said. "The main area of concern is the concentration of non-performing real estate assets, which require a lot more time to recover."
Provisioning at ADIB, the capital's biggest Sharia-compliant lender, rose 11.9 per cent to Dh150.8m. Losses at Burooj Properties, the bank's property unit, widened in the quarter by 27.3 per cent to Dh36.3m as the unit took write-offs of Dh6.2m.
Burooj is expected to post losses "until there is a meaningful and sustained positive change in the real estate market," the bank said.
ADCB also reported a tenfold increase in net income from Islamic financing to Dh36.3m compared with a year earlier, after it relaunched its Sharia-compliant operations during the quarter.
During the quarter, ADCB completed its sale of a 25 per cent stake in RHB Capital, a Malaysian lender, to Aabar Investments, a strategic investment company.
The Aabar purchase, for 5.9bn Malaysian ringgit - worth Dh7.3bn in the third quarter - was funded by an interest-free loan from Aabar's parent, the International Petroleum Investment Company, a recent bond prospectus revealed.
A Dh7.3bn loan from ADCB to Ipic was used to fund that transaction, allowing ADCB to bolster its lending book. Net loans and advances at the bank increased 5.7 per cent to Dh124.2bn during the third-quarter, although, excluding the loan to Ipic, the bank's lending contracted by about Dh500m.
Meanwhile, the Dubai bank Mashreq reported an increase in net profit of 16.8 per cent to Dh756m for the first nine months of the year. The earnings are equivalent to a third-quarter profit of Dh204.4m, a 5.3 per cent increase on the same period last year.