Mixed bag as one bank's gain is another's loss

First-quarter financial results for banks this year have been decidedly mixed, with about half reporting major gains and others still showing signs of stress from growing loan defaults. Union National Bank (UNB), the UAE's sixth-largest by assets, posted a 26 per cent rise in first-quarter profit yesterday, beating analysts' estimates as borrowing costs declined and margins widened. The bank made Dh380 million (US$103.4m) during the quarter, up from Dh304m in the same period last year.

"Earnings [in the quarter] beat our estimates by 40 per cent and street estimates by 25 per cent helped by margin expansion, strong fee income and lower loan loss provisioning," analysts at HC Securities in Dubai said yesterday. "UNB continues to follow a cautious approach in credit expansion as reflected in its flat loan book, which is lower than its Abu Dhabi peers." Mashreqbank, the country's fifth-largest lender by assets, yesterday reported a 48 per cent drop in first-quarter profits to Dh251m. The Dubai-based bank set aside Dh484m as a buffer against bad loans. That sum would otherwise would have been booked as profit.

Abdulaziz al Ghurair, the bank's chief executive, said that last year was "a real test for the UAE banking industry as the extent of the global economic situation continued to be revealed" but added he was "pleased that the bank is operating both profitably and prudently in its financial management, to ensure that we continue to be a major force on the regional banking landscape". Those results followed mixed figures from the UAE's four largest banks this week and last week. All of the country's lenders are still dealing with a rise in defaults and slower loan growth as a result of the global downturn, and banks have already reported setting aside more than Dh2 billion in provisions during the first quarter. According to Central Bank figures, total provisions in the UAE's banking system rose to Dh34.4bn at the end of last month, up by almost 60 per cent from a year before.

Emirates NBD, the country's largest bank, this week reported quarterly profits of Dh1.11bn, down 12 per cent from the same period last year but ahead of analysts' estimates. First Gulf Bank reported a 23 per cent rise in profits and National Bank of Abu Dhabi said it made Dh1.03bn in the first quarter, its most profitable ever. Abu Dhabi Commercial Bank (ADCB) reported quarterly profits of Dh225m, down 36 per cent from the same period a year before.

Analysts say ADCB may be one of the most stressed lenders in the country despite its widening profit margins and improving investment performance. The bank is expected to set aside millions of dirhams more this year for bad loans as it deals with large exposures to Dubai World and two troubled Saudi conglomerates - the Saad Group and Ahmad Hamad Al Gosaibi and Brothers. Banks have not taken write-offs on loans to Dubai World, the Dubai Government conglomerate that is in talks to restructure $24.8bn (Dh91.09bn) of debt.

"We expect provisioning to be high in 2010," analysts at Al Mal Capital in Dubai said in a note yesterday. [e-mail]