UAE banks benefit as confidence rises

UAE lenders may beat analyst expectations in the fourth quarter as investors prepare for getting higher dividends

UAE banks are preparing to report another set of improved results this month as a rise in business confidence and soaring housing prices pushed loan growth higher and reduced bad loan provisions.

Deposits are also rising as the growing economy puts more money into people’s wallets.

Investors are also anticipating announcements of higher dividend yields on the back of better than expected profit for the fourth quarter of 2013.

While the holders of bank stock may not be disappointed, analysts said that the banks would probably keep some money on the table to fund expansion plans.

“It’s possible we’re going to see earnings surprises because the positive trends in loan growth and non-performing loans are likely to be stronger than expected,” said Shabbir Malik, a Dubai-based bank analyst at the Egyptian investment bank EFG-Hermes.

“We expect higher dividends. However, I expect banks to start retaining capital to focus on growing their balance sheets in the coming years.”

Many banks shied away from rolling out new products and hiring staff in the years following the financial crisis of 2008, but now they are now starting to accelerate these investments.

Sanyalak Manibhandu, a senior analyst at National Bank of Abu Dhabi Securities, noted in a report yesterday that he expects the cost-to-income ratio of lenders to increase in the fourth quarter as upbeat managers allocate funds to developing their banks.

National Bank of Abu Dhabi, Abu Dhabi’s largest lender by assets, may report a fourth-quarter income of Dh1.04 billion, according to estimates compiled by Bloomberg. And Emirates NBD, Dubai’s biggest bank, could announce quarterly net income of Dh713.5 million, some 14 per cent higher than the previous year.

Meanwhile, the latest figures from the Central Bank that were released yesterday confirm the growth of deposits and assets in the first month of the fourth quarter. Total bank deposits increased 1.2 per cent during October, reaching Dh1.29 trillion, while assets rose 4.1 per cent to reach Dh1.98tn, at the end of October, the Central Bank said.

Mr Shabbir said his investment bank’s forecast for loan growth this year was 9 per cent, the same as last year. He added that he would not be surprised if it exceeded that because of more confidence among consumers and corporations.