UAE banks return to lending

According to financial consultancy Alvarez & Marsal’s analysis, the increase in lending meant that banks were able to boost operating revenue growth by 2.31 per cent.

Emirates NBD said that net profit for the first three months increased by 3.6 per cent year-on-year to Dh1.87 billion. Pawan Singh / The National

UAE banks increased their loan books by 2.13 per cent compared with the previous quarter, marking a return to lending after years of lacklustre growth.

The financial consultancy Alvarez & Marsal reported that the increase in lending at the UAE’s top 11 banks between the first quarter of this year and the final quarter of last year came after loan books in the country’s top banks fell by 0.13 per cent between Q3 and Q4 2016, marking the end of a per­iod of flat lending growth.

According to A&M’s analysis, the increase in lending meant that banks were able to boost operating revenue growth by 2.31 per cent.

The crash in global oil prices over the past two years softened demand for loans among local corporations and increased the level of debt defaults.

However, with oil prices recovering slightly at the start of the year, A&M says that banks have shored up their balance sheets.

“The overriding theme of the most recent quarter is very much revenue-based. Banking revenues have risen on the back of increased lending, which has been a key area of focus for the sector, and means that liquidity remains at healthy levels,” said Saeeda Jaffar, A&M’s managing director.

“However, this has in turn contributed to a more competitive environment, leading to a reduction in interest income, reducing yields on credit. When combined with increased cost of funding incurred in growing loan books, this has impacted net interest margins.”

A&M reported that the level of deposits within banks increased by 3.43 per cent in the first quarter of 2017 compared with the previous quarter.

However, A&M said the result has been a decline in margins for banks, adding that net interest margins fell from 2.57 per cent at the end of 2016 to 2.53 per cent in 2017’s first quarter.

In April, National Bank of Abu Dhabi, which has since merged with FGB to form First Abu Dhabi Bank, and Emirates NBD, the country’s two biggest lenders, posted earnings that also showed an improvement in non-performing loans.

Emirates NBD said that net profit for the first three months increased by 3.6 per cent year-on-year to Dh1.87 billion from Dh1.8bn a year earlier.

NBAD said that its pro forma first-quarter profit, including FGB revenue, rose by 12.4 per cent, amid rising revenues and cost savings garnered from the combination.

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