National Bank of Abu Dhabi ...one of the top banks in UAE
Solid profitability seen for top UAE banks
DUBAI, February 15, 2017
The five large United Arab Emirates banks' core profitability is expected to remain solid over the next 12-18 months, according to a Moody's report.
In Q4 2016, the five banks -- Emirates NBD (A3 Stable), National Bank of Abu Dhabi (Aa3 Negative), Abu Dhabi Commercial Bank (A1 Negative), First Gulf Bank (A2 Positive), and Dubai Islamic Bank (Baa1 Positive) -- posted solid profitability, it said.
"However, we anticipate pressure from rising funding costs as liquidity continues to tighten, and as banks increase their reliance on wholesale funding," said Nitish Bhojnagarwala, assistant vice president at Moody's, in the report.
The five banks reported a solid combined net profit of Dh6.8 billion ($1.8 billion) in Q4 2016, despite a decline in UAE's non-oil real GDP growth to 2.5 per cent in 2016 from a 2012 peak of 6.4 per cent, weighed down by weak oil prices.
The banks' Q4 performance was underpinned by higher fee and commission income from retail and corporate lending services. This helped offset a modest increase in operating expenses and higher funding costs, which rose to 1.2 per cent from 0.9 per cent a year earlier due to tightening liquidity conditions.
Impairment charges were also lower for most of the peer group in Q4, as previous significant increases in loan loss coverage ratios have now given the banks' adequate financial buffers.
Moody’s expects a rise in impairment charges in 2017, however, driven by the continued economic slowdown.
Overall net profitability in Q4 2016 was 2 per cent lower than in Q3 2016, and down 5 per cent from Q4 2015, largely driven by decline in "other" income, including one-off gains, dividends from investments, and other non-recurring income.
Combined deposits at the five banks grew by 2 per cent to Dh991 billion (around $270 billion) relative to Q3 2016.
The five banks' combined Tier 1 capital ratio increased to 17.3 per cent in Q4 2016 from 16.9 per cent the previous quarter.
By Q1 2017, Moody’s expects a planned merger between NBAD and FGB to be completed. As of December 2016, these five banks accounted for a combined 62 per cent of the UAE banking system by total assets. - TradeArabia News Service