Mixed reaction over Union National Bank

What's Up: Union National Bank climbs after it posts higher earnings in spite of naysaying from analysts. But that doesn't mean that the Abu Dhabi-based lender is free from significant worries.
UNB reported profits of Dh415.3 million for the second quarter.
UNB reported profits of Dh415.3 million for the second quarter.

Not too hot, not too cold; Union National Bank's (UNB) stock has been right in the middle of the UAE's big five listed banks since the start of the year. But are its latest earnings just right?

Strong corporate lending pushed the Abu Dhabi lender to stronger profits for the second quarter, but analysts said the latest results showed fewer growth prospects.

UNB reported profits for the quarter of Dh415.3 million, an increase of 23.1 per cent on the same quarter last year. Analysts polled by Bloomberg News had expected earnings of Dh396m.

Traders pushed the bank's stocks up 4.1 per cent to Dh3.51 a share yesterday, the largest intraday increase since June 1.

UNB's commercial lending division has been the real star performer, with profits of Dh439m during the first half of the year, almost twice the level recorded in the same period last year. The bank did not provide a quarterly comparison for its income from this segment.

With bearish sentiment abounding on world markets, it is little surprise to see some wariness from analysts. Despite the increased profits, doubts remain over the strength of the bank's loan book, according to a research note from Global Investment House.

"UNB's results were in line with our expectations, while performance was good overall. Net interest income jumped significantly," wrote Naveed Ahmed, a senior financial analyst at Global.

"We remain satisfied with the bank's performance for the quarter although continuation of similar provisions and weak loan growth could lead us to revise our estimates for the full year," he added.

Provisions increased 21.1 per cent to Dh151m, leaving little room for the bank to increase its lending. Net loans and advances were flat at Dh56.2 billion.

UNB may also need to bolster its provisions in the quarters ahead, which cover only half the value of its bad loans, according to a research note from AlembicHC.

The bank was among lenders to Al Jaber Group, the Abu Dhabi conglomerate that began restructuring talks with creditors last December.

Although the discussions are proceeding, the extent to which the bank must provide for lost income from the restructuring is still an unknown quantity.



Published: August 1, 2011 04:00 AM


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