UAB cuts provisions for credit losses as it turns fortunes around

United Arab Bank says its first-quarter profit dropped 38 per cent amid a decline in interest income.

UAB’s provisions for credit losses fell by 51 per cent to Dh56m in Q1 from Dh114m in the same period last year. Pawan Singh / The National

United Arab Bank (UAB), the Sharjah-based bank that was among the worst hit by the fallout from the SME debt crisis, said the money it set aside for credit gone sour was halved in the first quarter amid efforts to turn the fortunes of the bank around.

UAB said provisions for credit losses fell by 51 per cent to Dh56 million in the first quarter from Dh114m in the same period last year.

“The operating performance for the first quarter of 2017 demonstrates tangible progress against our transformation strategy,” said Faisal Al Qassimi, the bank’s chairman.

“The challenges that the bank has now largely overcome were significant, yet the decisive actions taken will see UAB well placed to deliver shareholder value in the medium term. We remain committed to completing our strategy and believe that our low-risk business model will make UAB a safer, stronger and sustainable bank.”

UAB booked a total loss of Dh166m in 2015 as impaired loans piled up after years of risky lending to SMEs unravelled in the economic downturn that was triggered by a crash in the price of oil.

Cracks in UAB’s operations appeared in earnest during the third quarter of 2015, when the bank lost Dh272.6m compared with a profit of Dh169.2m in the same quarter of 2014.

Since then the bank has embarked on a transformation plan to clean up its books and reduce its exposure to the riskiest forms of lending, which while in good times garners handsome profits, in bad times can lead to big losses.

Still, the lender said its first-quarter net profit slipped by 38 per cent amid a decline in interest income as the slowdown crimps demand for loans and banks become pickier about who they lend money to.

Net profit for the first three months of the year fell to Dh28m from Dh45m in the same period of 2016.

Net interest income slipped 37 per cent in the first quarter to Dh119m compared with Dh189m in the corresponding period last year, the bank said.

Small business were among the biggest casualties of the economic fallout that followed the crash in oil prices that started in 2014.

Many small business owners skipped town at the height of the drop the following year, leaving what was estimated to be Dh5 billion in unpaid debt.

SMEs make up 90 per cent of registered companies in this country and authorities have been banking on small businesses to bolster economic growth at a time when the hydrocarbon industry is in the doldrums.

While refraining from lending to SMEs has kept a lid on losses at banks, it has also starved the segment from much needed funding, putting a further damper on economic growth.

Abdul Aziz Al Ghurair, the chairman of the UAE Banks Federation, said last month that SMEs continue to suffer from lack of financing from banks and called on them to lend a hand.

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