Banks are expected to overcome the effect of the fall in oil price when they start to report earnings for the fourth quarter this week.
But the decline in stock markets is likely to be reflected in their investment portfolios, analysts predict.
Still, experts expect positive earnings growth driven by lending, wealth management and trade finance.
A sharp decline in equities in the last two months of the year may be reflected in some earnings to emerge from the sector in the next two weeks. In 2014, oil prices dropped 46 per cent, the commodity’s steepest fall since 2009, while Dubai’s benchmark index declined more than 30 per cent in December before a rebound that lifted its yearly gain to 11 per cent.
The UAE is the world’s eighth-biggest oil producer and the federal government funds more than 60 per cent of its budget from crude exports.
“The drop in oil should not affect fourth quarter earnings,” said Shabbir Malik, a Dubai-based bank analyst at the Egyptian investment bank EFG Hermes.
“The only thing that may be affected is investment income, because we’ve seen Dubai and Abu Dhabi stocks come down in the fourth quarter.”
Down the line, if oil prices continue to drop banks that rely heavily from government businesses and funds for deposits such as National Bank of Abu Dhabi (NBAD) and FGB may feel the effect more than lenders that focus on individual customers such as Abu Dhabi Islamic Bank (ADIB) and RAKBank, analysts said.
"Some banks will be more affected by the drop in oil than others," said Jaap Meijer, director of financial services research at Dubai-based investment bank Arqaam Capital. "You will see the likes of NBAD, UNB and FGB, which have slightly higher than average deposits from the government, will face more of a slowdown and availability of funding. Other banks that have bigger retail loan books like Abu Dhabi Islamic Bank and RAKBank will be less affected."
NBAD, the biggest bank by assets in the UAE, is forecast by three analysts polled by Bloomberg to report fourth quarter net income of Dh1.35 billion, up 26 per cent from Dh1.07bn in the same period last year. Meanwhile, analysts expect ADIB, Abu Dhabi’s largest Sharia-compliant lender, to report a profit of Dh443 million in the three months ended December, up 29 per cent from Dh343.3m in the same period last year.
In total, EFG Hermes forecasts growth of about 27 per cent in year on year bank profits in the fourth quarter for the nine banks it covers, said Mr Malik.
UAE banks, whose profits rose to a record last year, have been the prime beneficiaries of a turnaround in the fortunes of the country’s economy, which grew by more than 4 per cent in 2014.
Low interest rates, government spending and an influx of cash from other emerging markets that view the country as a safe haven have boosted deposits and encouraged lending.
Corporations and individuals have taken advantage of low rates on bank loans for everything from refinancing old debt to buying new homes and cars.
But because interest rates are low, the banks – of which there are more than 50 servicing a population of 9 million in the UAE – have had to compete for clients and search for other ways to make money apart from the interest they make on loans in fields that include trade finance, asset management and securities brokerage.
“There’s been a strong growth in 2014 in non-interest income from activities which include wealth management, brokerage, insurance and trade and corporate advisory,” said Mr Malik of EFG Hermes. “Continued growth in non-interest income in 2015 will depend on how economic activity holds up over the short to medium term.”
mkassem@thenational.ae
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