UAE lenders outdo expectations

Markets Update: January was a strong month for the UAE; the Abu Dhabi Securities Exchange was up 9.5 per cent and the Dubai Financial Market up 16.3 per cent.

The country's largest banks reported higher fourth-quarter earnings than expectations, with some of the surprise because of higher than expected non-interest returns. Silvia Razgova / The National
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January was a strong month for the UAE; the Abu Dhabi Securities Exchange was up 9.5 per cent and the Dubai Financial Market up 16.3 per cent.

UAE banks in general performed well and reported strong fourth- quarter results that in most cases exceeded expectations.

The country's largest banks reported higher fourth-quarter earnings than expectations, with some of the surprise because of higher than expected non-interest returns, as was the case with the National Bank of Abu Dhabi (NBAD) and Abu Dhabi's First Gulf Bank, which also announced a surprisingly higher cash dividend.

Banks such as Abu Dhabi Commercial Bank, Emirates NBD and NBAD also took lower levels of loan loss provisioning contrary to what had been expected.

Almost all banks are upbeat on their prospects and believe in an improving economic outlook.

The banking sector data for the month of October showed total assets increased by 5.5 per cent year on year.

Net loans were flat month on month and up 2.8 per cent year on year. Loan growth remains muted.

However, deposit growth showed relative improvement but remained volatile last year. On a year to date basis, deposits increased by 8.7 per cent until October with Dh92.6 billion deposits being added at the system level.

Loans to deposits ratio stood at 95 per cent in October as against 100 per cent at the end of 2011. In October, for the first time, specific and general provisions declined although the decline was marginal.

The third quarter net profit of top listed banks increased by 3 per cent quarter on quarter and by 21 per cent year on year. The increase in the profitability of UAE banks is partially because of a decline in provisioning.

Overall, the Dubai property market did quite well last month, supported by continued improvement in property prices and rentals, increased profitability of major developers such as Nakheel and Emaar, a new project launch by Emaar and continued improvement in the tourism and hospitality segment.

The biggest news for the property sector in the UAE was the move by the Central Bank to possibly impose limits on loan to value (LTV) for property buyers.

The move was signalled by a discussion document that would initiate consultation with commercial banks.

The purpose of the LTV limits is to curb speculative property purchases.

However, it is widely believed that the impact would be felt at a much wider level and may even reverse Dubai's recent gain in property prices and delay recovery of property prices in Abu Dhabi.

Overall, the construction sector benefited from a pickup in activities as the regional governments have continued their spending, mainly in the infrastructure segment.

The author is the head of equities at National Bank of Abu Dhabi