Mashreqbank and Abu Dhabi Islamic Bank (ADIB), two of the country's largest lenders, have reported sharply lower second-quarter profits as they set aside provisions for bad loans and warned of more to come. The results continue a trend marked by high provisions, slow lending growth and flat revenues, all of which are lowering profits.
But analysts welcomed banks taking a cautious approach during the financial crisis. Tirad Mahmoud, the ADIB chief executive, warned the bank would set aside more provisions in the future and continue its "conservative approach". "The credit environment remains weak and we expect the rest of this year to remain challenging, with further provisioning necessary," Mr Mahmoud said. Mashreqbank, based in Dubai, saw its second-quarter net profit fall by 38.5 per cent to Dh435 million (US$118.4m), compared with the second quarter last year, as it set aside Dh319m in provisions.
ADIB said second-quarter profits fell 30 per cent to Dh193.4 million from the same period last year as it set aside Dh171.4m in provisions against credit losses. Pointing to a rise in distressed loans, ADIB said it was "actively engaged with our clients who have been impacted by the current economic conditions and are working with them to develop solutions that will enable them to meet their commitments".
Neither of the banks revealed data on non-performing loans (NPLs), which has become a key measure as lenders adjust to leaner times. "NPLs are the most important information and allow us to assess the loan quality," said Sofia el Boury, a banking analyst at Shuaa Capital. Earlier this week, Emirates NBD warned that NPLs could rise to 2.5 per cent next year from the present 1.56 per cent. Economic woes have forced banks across the globe to set aside large amounts of money to prepare for defaults.
On Monday, Deutsche Bank, one of Europe's largest lenders, increased its provisions against loan losses to ?1bn (Dh5.2bn), twice the amount of the first quarter and equivalent to all its provisions for last year. The IMF warned this week that 14 per cent of US loan books would go sour, while 7 per cent of loans in Europe would be lost. With the exception of the Bank of Ajman, all publicly traded banks in the UAE have now reported second-quarter results.
The banks have booked a total of Dh5.2bn in second-quarter profits, down 26.8 per cent from the second quarter of last year, when they made Dh7.1bn. Abdul Aziz al Ghurair, the Mashreqbank chief executive, said his bank's provisions were "key to ensuring that the bank operates in a sustainable manner while the ups and downs of the current crisis play out". At least 12 UAE banks are owed money by two huge Saudi conglomerates - the Saad Group and Ahmad Hamad Al Gosaibi and Brothers - which have defaulted on their loans and are undergoing sweeping debt restructurings.
Precise figures have yet to emerge but the conglomerates are estimated to owe banks tens of billions of dollars that they may be incapable of repaying. Against that backdrop, banks in the UAE have so far reported more than Dh4.4bn in provisions against bad loans in the first half of this year. Emirates NBD, the country's largest bank by assets, said it had taken Dh1.6bn in provisions in the half. Abu Dhabi Commercial Bank took Dh890m in provisions, and First Gulf Bank in Abu Dhabi took Dh480m.
When Abu Dhabi Islamic Bank reported its results yesterday, it revealed Dh264.4m in provisions during the first half of the year. The bank is owed an estimated Dh146.9m as its share of a syndicated loan to Awal Bank, a Saad Group subsidiary, according to a document circulating among bankers. It is also owed Dh245m it lent Saad to finance an investment in Makhazen Industrial Investments, a warehousing company in Abu Dhabi that never got off the ground.
Mashreqbank also reported Dh319m in loan provisions for the quarter. The bank has given several loans to the Saad and Al Gosaibi groups and their subsidiaries. The bank is involved in court disputes in the US in which it is alleging Al Gosaibi failed to keep its end of a currency swap agreement, leaving the bank with a loss of $150m. @Email:uharnischfeger@thenational.ae