Dubai’s CBD reports weaker first quarter profit on higher provisions

Net profit for the reporting period declined to Dh315m as the lender expects potentially greater loan losses during Covid-19 pandemic

Commercial Bank of Dubai has set a foreign ownership limit of 40 per cent following approval from the company’s shareholders. Bloomberg

Commercial Bank of Dubai reported a 7 per cent drop in its first-quarter net profit as impairment allowances rose and revenue fell amid the coronavirus pandemic.

Net profit for the three months ending March 31 declined to Dh315 million, the lender said in a statement on Wednesday. Net impairment allowances climbed 5 per cent year-on-year to Dh240m due to “higher forecast credit losses expected on the back of the Covid-19 pandemic as well as specific credit provisions”. Revenue dropped 2.3 per cent to Dh757m.

“Overall our underlying results were weaker by 7.3 per cent on the back of lower interest rates, weaker business conditions and higher expected credit losses,” said Dr Bernd van Linder, CBD chief executive.

“In accordance with accounting standards, we have prudently increased forecast expected credit losses associated with Covid-19 in anticipation of challenging economic conditions for the remainder of the year. Notably, the bank’s capital base continues to provide a strong foundation for continued support to our customers during the ongoing economic uncertainty associated with Covid-19 and beyond.”

The lender's non-performing loan ratio rose to 6.59 per cent, compared to 5.94 per cent at the end of 2019, but Mr van Linder said “liquidity and eligible liquid asset ratios are comfortably above the minimum levels prescribed by the UAE Central Bank”.

Net interest income and Islamic financing income declined 1.7 per cent year-on-year to Dh485m, but operating expenses were also 2.2 per cent lower at Dh201m, the bank said.

Total assets grew 2.1 per cent to Dh89.9 billion, while net loans and advances rose 3.6 per cent from the end of last year to reach Dh62.3bn. Customer deposits increased 1 per cent to Dh63.9bn during the period.

Lenders across the world are at risk of a decline in profitability as loan growth slows and interest rates fall as central banks embark on monetary easing measures to soften the economic blow caused by the coronavirus pandemic. The International Monetary Fund earlier this month projected a 3 per cent contraction in the global economy in 2020.

“We would like to commend our leaders and the government here in the United Arab Emirates for the outstanding proactive measures taken during this crisis period. These steps will ensure the well-being of our citizens and deliver a swift and complete recovery of the local economy,” added Mr van Linder.

“We would also like to highlight the comprehensive economic support measures undertaken by the Central Bank through the Targeted Economic Support Scheme.”

The UAE, the second-biggest Arab economy, was the first in the Middle East and North Africa to roll out Dh282bn in fiscal and monetary support, providing zero interest funding to banks to boost lending growth in the country. The government, in addition, has also implemented a variety of other initiatives that range from discounted utility bills to waivers of fees to buttress the economy.

The Central Bank of the UAE this week said lenders have tapped 30 per cent of a Dh50bn Targeted Economic Support Scheme facility to help businesses and individuals through the Covid-19 outbreak. The central bank has also eased banks' credit and liquidity buffers to encourage lending to businesses and individuals.