Union National Bank’s flat profit still managed to beat analysts. Pawan Singh / The National
Union National Bank’s flat profit still managed to beat analysts. Pawan Singh / The National
Union National Bank’s flat profit still managed to beat analysts. Pawan Singh / The National
Union National Bank’s flat profit still managed to beat analysts. Pawan Singh / The National

Business

Mashreq and UNB edge into profit as UAE economy strengthens

Union National Bank said its first-quarter profit rose marginally, boosted by an increase in lending even as the money set aside to cover bad debt increased during the period.

Mahmoud Kassem

April 12, 2017

  • English
  • Arabic

Two UAE lenders, Dubai-based Mashreq and Abu Dhabi-based Union National Bank (UNB), eked out a net profit in the first quarter of this year, amid signs of an economic improvement in the country.

Mashreq said on Wednesday in a statement that its net profit rose by 2.7 per cent to Dh546.2 million in the first quarter compared with Dh531.8m a year earlier, thanks to a 15 per cent drop in impairment charges to Dh310.7m.

Union National Bank said its first-quarter profit rose marginally, boosted by an increase in lending even as the money set aside to cover bad debt increased during the period.

Net profit rose to Dh452m in the first three months of the year compared with Dh450m in the same period the previous year, the bank said in a filing to the Abu Dhabi stock exchange. Net interest income and net income from Islamic financing rose by 5 per cent to Dh652m in the first three months of the year compared with Dh623m, the bank said.

Loans and advances increased by 8 per cent to Dh73.5 billion at the end of March compared with Dh68.3bn at the end of March last year.

Meanwhile net impairment charge on financial assets almost doubled to Dh169m in the first quarter compared with Dh85m a year earlier.

“The liquidity situation in the market has improved during the first quarter of 2017 with gradually improving prospects,” said Mohammad Nasr Abdeen, UNB’s chief executive. “However, the credit growth remained muted as the operating environment continues to align with new global and regional economic paradigm.”

“UNB Group, while pursuing its risk-based prudent strategy, will continue to invest in areas of growth and maintain strong capital levels and adequate liquidity,” he said.

UAE banks and financial institutions that lend have not had the best of times in recent years. Deposits have dwindled as government-related entities have withdrawn funds to plug growing budget deficits.

While the fall in the price of oil, which has been reversing since November, led to an increase in borrowing by governments to reduce those deficits, it has softened demand for loans among local corporations and increased the level of debt defaults. Among the hardest hit have been small and medium-sized businesses.

Yet despite the troubles, there are increasing signs of improvement in business conditions for banks, such as an increase in lending despite the provisions banks are continuing to take.

mkassem@thenational.ae

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Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.

Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.

“Within the next two to three years, we are looking at reaching $2 to $3 billion as a conservative estimate and we do see an opportunity to do so,” said Mr AbuShaban.

Mercer does not directly make investments, but allocates clients’ money they have discretion to, to professional asset managers. They also provide advice to clients.

“We have buying power. We can negotiate on their (client’s) behalf with asset managers to provide them lower fees than they otherwise would have to get on their own,” he added.

Mercer Wealth’s clients include sovereign wealth funds, family offices, and insurance companies among others.

From its office in Dubai, Mercer also looks after Africa, India and Turkey, where they also see opportunity for growth.

Wealth creation in Middle East and Africa (MEA) grew 8.5 per cent to $8.1 trillion last year from $7.5tn in 2015, higher than last year’s global average of 6 per cent and the second-highest growth in a region after Asia-Pacific which grew 9.9 per cent, according to consultancy Boston Consulting Group (BCG). In the region, where wealth grew just 1.9 per cent in 2015 compared with 2014, a pickup in oil prices has helped in wealth generation.

BCG is forecasting MEA wealth will rise to $12tn by 2021, growing at an annual average of 8 per cent.

Drivers of wealth generation in the region will be split evenly between new wealth creation and growth of performance of existing assets, according to BCG.

Another general trend in the region is clients’ looking for a comprehensive approach to investing, according to Mr AbuShaban.

“Institutional investors or some of the families are seeing a slowdown in the available capital they have to invest and in that sense they are looking at optimizing the way they manage their portfolios and making sure they are not investing haphazardly and different parts of their investment are working together,” said Mr AbuShaban.

Some clients also have a higher appetite for risk, given the low interest-rate environment that does not provide enough yield for some institutional investors. These clients are keen to invest in illiquid assets, such as private equity and infrastructure.

“What we have seen is a desire for higher returns in what has been a low-return environment specifically in various fixed income or bonds,” he said.

“In this environment, we have seen a de facto increase in the risk that clients are taking in things like illiquid investments, private equity investments, infrastructure and private debt, those kind of investments were higher illiquidity results in incrementally higher returns.”

The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds, said in its 2016 report that has gradually increased its exposure in direct private equity and private credit transactions, mainly in Asian markets and especially in China and India. The authority’s private equity department focused on structured equities owing to “their defensive characteristics.”

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