Positive review helps FGB defy the trend

Amid the prevailing global stock market mayhem, it takes only a few positive words to help a stock gain a few fils. That was true yesterday for First Gulf Bank (FGB), one of the country's largest banks by market capitalisation. The stock rose 1.2 per cent to close at Dh16.85 on the Abu Dhabi Securities Exchange General Index after Morgan Stanley raised its evaluation to "overweight" and said the stock should be priced at Dh23.

The report painted a dire picture of the months to come for Abu Dhabi banks and highlighted Morgan Stanley's expectation that asset quality and non-performing loans would continue to deteriorate. FGB, however, was portrayed as one of the most resilient Abu Dhabi banks. Morgan Stanley said it expected the bank to increase its lending this year and next year by 15 and 17 per cent, respectively. Morgan Stanley expects other Abu Dhabi banks to average lending growth of 9 and 12 per cent, respectively, for the two years.

As FGB is majority owned by the government, the bank's main business has always been corporate lending and project financing for governmental and quasi-governmental institutions. Lately, this close relationship to the public sector has helped FGB more than ever. After all, public entities accounted for all of last year's loan growth, and for two thirds of that growth in the first three months of this year.

In addition, FGB has profited from acting as an agent for a government-subsidised loan scheme. The scheme, which aims to boost demand for property among Emiratis, accounts for 8 per cent of the bank's overall loan book and helped pushed loan growth up by one third. Overall, FGB bucked the general trend in the region last year when it reported a 10 per cent increase in net profit, despite a tripling of provisions in the fourth quarter.

FGB's provisioning remained relatively high but should stabilise soon, Morgan Stanley said. On the downside, however, the bank has been slow in switching to international standards for reporting non-performing loans. It is the only major bank in the UAE that still waits 180 days before declaring a loan non-performing. The FGB picture is not without its flaws, but it looks pretty good in an ugly environment.

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