First Gulf falls short of the target

First Gulf Bank sees profits decline slightly but the bank appears more stable as it ups provisions and heads off an increase in bad debts.

First Gulf Bank earnings missed analysts' estimates yesterday despite an improving balance sheet and the stabilisation of bad debts.

The UAE's second-biggest bank by market capitalisation reported first-quarter net profit of Dh875.3 million (US$238.3m), 4.8 per cent less than in the same quarter last year.

The results surprised analysts, who had expected profits of Dh973.5m, according to Bloomberg News analysts' estimates.

But Shabbir Malik, a financial analyst at EFG-Hermes, said there was still cause for optimism.

"Although their profits seem to have come in below expectations, if you look at the details, asset quality is in a much better shape than it was in the fourth quarter," he said. "That suggests they're in a good position. "There will be negative sentiment, though, given that provisions were higher than what markets had been expecting for them."

Mr Malik said the decrease in profits was disappointing, but noted the bank's balance sheet had improved as more money was put aside to cover higher expectations of defaulting debtors, which did not materialise during the quarter.

"Their NPL [non-performing loans] ratio hasn't gone up and NPL coverage has improved to close to 100 per cent," Mr Malik said.

Explaining the results, Andre al Sayegh, the bank's chief executive, said: "It is fair to remember that our first-quarter 2010 profit included proceeds of Dh179m from the sale of real estate."

The bank's balance sheet was also benefiting from improving macroeconomic conditions throughout the Emirates, he said.

"Now that the worst of the economic downturn is gradually coming to an end, our provisioning level is reflecting this market reality, whereby our provisioning reduced by 7 per cent to Dh459 million in the first quarter of 2011, as compared with the same period last year."

The bank's NPL ratio stabilised at 3.7 per cent of its loan book, the same rate at the end of last year.

Core banking revenue was also 8 per cent higher than a year ago at Dh1.58 billion, but the bank's underlying profits were not so robust, falling 3.3 per cent to Dh1.6bn from the same quarter a year ago.

Net loans and advances rose during the quarter, increasing 1.5 per cent to Dh97.1bn. However, deposits decreased 0.2 per cent to Dh98.5bn. During the quarter, the bank also discontinued its management agreement with its Libyan operations, citing force majeure.