National Bank of Abu Dhabi, the biggest publicly traded bank in the UAE, said its first-quarter profit dropped 0.3 per cent year-on-year as interest rates at an eight-year low and competition for consumer clients lowered margins.
While NBAD has had the biggest profit among banks in the first three months of the year, the growth has bucked the trend of what has been buoyant quarterly advances for banks including First Gulf Bank and Emirates NBD, Dubai’s biggest bank.
NBAD’s net income fell to Dh1.406 billion from Dh1.409bn in the first quarter of last year, the Abu Dhabi-based lender said. Revenues fell slightly to Dh2.509bn from Dh2.510bn in the same period. Net interest margin decreased to 1.84 per cent in the first quarter from 1.97 per cent in the same period the previous year, while the bank’s cost to income ratio increased to 31.6 per cent in the first quarter from 29 per cent in the same period last year.
“Our results in the first quarter of 2014 reflect a continuation of the momentum we began to see in the third and fourth quarters of 2013,” said Alex Thursby, the bank’s chief executive.
“Overall, we produced very good ‘business as usual’ results in a marketplace in which we continue to see margin compression. Our strategy enables us to generate growth at acceptable returns for our shareholders in this competitive environment.”
The competition for retail banking customers has intensified in the past few years because the margins on loans to individuals are higher than those to companies. And an improvement in the economy amid low interest rates has boosted the appetite among consumers to take loans for home, cars and other big ticket item purchases.
That has led NBAD, which has only the fifth largest retail banking network, to focus more on generating fees in other parts of the bank’s business, such as in foreign exchange and trade finance as well as capturing trade flows between the East and West.
“It has been my belief since arriving here in July that the margin compression story here was about to unfold and it’s unfolded very quickly,” Mr Thursby, who became chief executive last summer, later told reporters in a conference call after the bank’s earnings were released. “And guess what? That’s exactly what has happened all over the world in the last 18 months to two years and it’s gone from the United States to Europe and Asia and now it’s here in the Middle East. The whole basis of our business model in my view had to change.”
Mr Thursby said he expected that lending in the UAE would become cheaper, especially as the spread between Eibor, the rate at which banks lend to each other in the UAE, and Libor, its better known London counterpart, closes.
The Eibor is hovering near an eight-year low, driven in part by flows of money into bank accounts, stocks and real estate from jittery investors in other emerging markets that view the UAE as an oasis of stability. The 12-month Eibor stands at 1.138 per cent. Since 2006, when records began, it has averaged 2.8 per cent, reaching a high of 5.52 per cent in 2007.
While other banks, such as Abu Dhabi Islamic Bank and Abu Dhabi Commercial Bank, have been growing their businesses through acquisitions, Mr Thursby said NBAD was very unlikely to do so. Instead, the bank has said it wants to focus on building its businesses organically at home and abroad.
mkassem@thenational.ae
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