NBAD dilemma as cap dampens aspirations

National Bank of Abu Dhabi (NBAD) faces a possible watershed year as its growth aspirations bump up against new lending limits imposed by the Central Bank.

The bank is most tied to the Abu Dhabi Government's spending plans, giving it scale to grow faster than many domestic rivals, analysts from Deutsche Bank wrote in a research note.

"NBAD's close ties to the Abu Dhabi Government (a 70 per cent shareholder) and perceived financial strength have provided the bank with a significant funding cost advantage relative to peers, which in turn has enabled the bank to generate healthy margins without taking excessive credit risk," the report said.

"We believe recent investment in the business - for example, seven branches were added domestically and two internationally in 2011 - could also help NBAD win market share from other banks."

But NBAD is expected to be among the most vulnerable to a new Central Bank directive limiting the amount that can be lent to an individual company, analysts from Morgan Stanley wrote in a research report.

"Out of the four Abu Dhabi banks we cover, NBAD would be impacted most. The bank has Dh72.7 billion gross public loans (mostly local government and government-related entities) versus Dh36.1bn total capital."

The new laws, announced this month, limit lending to a single entity to 25 per cent of a bank's capital, and aggregate exposure to arms of local government is capped at 100 per cent of bank capital.

The cap will come into effect by September 30 and is expected to force banks to diversify their relationships with government-related entities such as Dubai World and Abu Dhabi's International Petroleum Investment Company.

That may limit NBAD's stated aspirations to increase its total assets fourfold to Dh1 trillion, and its annual earnings to Dh16bn, by 2021.

Much of that growth is expected to come through capitalising on new trade corridors, including between the Middle East and Latin America, which has been the focus of a number of deals with the Emirates this year.

The bank's stock has risen 6.6 per cent so far this year, lagging behind many of its UAE competitors, and the shares have remained languid for much of this month. The bank generated a profit of Dh3.7bn last year, a 0.8 per cent increase on 2010.

ghunter@thenational.ae

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Ten tax points to be aware of in 2026

1. Domestic VAT refund amendments: request your refund within five years

If a business does not apply for the refund on time, they lose their credit.

2. E-invoicing in the UAE

Businesses should continue preparing for the implementation of e-invoicing in the UAE, with 2026 a preparation and transition period ahead of phased mandatory adoption.

3. More tax audits

Tax authorities are increasingly using data already available across multiple filings to identify audit risks.

4. More beneficial VAT and excise tax penalty regime

Tax disputes are expected to become more frequent and more structured, with clearer administrative objection and appeal processes. The UAE has adopted a new penalty regime for VAT and excise disputes, which now mirrors the penalty regime for corporate tax.

5. Greater emphasis on statutory audit

There is a greater need for the accuracy of financial statements. The International Financial Reporting Standards standards need to be strictly adhered to and, as a result, the quality of the audits will need to increase.

6. Further transfer pricing enforcement

Transfer pricing enforcement, which refers to the practice of establishing prices for internal transactions between related entities, is expected to broaden in scope. The UAE will shortly open the possibility to negotiate advance pricing agreements, or essentially rulings for transfer pricing purposes.

7. Limited time periods for audits

Recent amendments also introduce a default five-year limitation period for tax audits and assessments, subject to specific statutory exceptions. While the standard audit and assessment period is five years, this may be extended to up to 15 years in cases involving fraud or tax evasion.

8. Pillar 2 implementation

Many multinational groups will begin to feel the practical effect of the Domestic Minimum Top-Up Tax (DMTT), the UAE's implementation of the OECD’s global minimum tax under Pillar 2. While the rules apply for financial years starting on or after January 1, 2025, it is 2026 that marks the transition to an operational phase.

9. Reduced compliance obligations for imported goods and services

Businesses that apply the reverse-charge mechanism for VAT purposes in the UAE may benefit from reduced compliance obligations.

10. Substance and CbC reporting focus

Tax authorities are expected to continue strengthening the enforcement of economic substance and Country-by-Country (CbC) reporting frameworks. In the UAE, these regimes are increasingly being used as risk-assessment tools, providing tax authorities with a comprehensive view of multinational groups’ global footprints and enabling them to assess whether profits are aligned with real economic activity.

Contributed by Thomas Vanhee and Hend Rashwan, Aurifer

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