Abu Dhabi Commercial Bank, a titan of the emirate’s banking scene, said yesterday that its net profit surged 16 per cent in the fourth quarter, defying expectations of analysts amid lower oil prices and weakening economic growth in the UAE.
The bank said it escaped the worst effects of falling oil prices in part by reducing exposure to small and medium-sized businesses, a segment that has shown the highest signs of stress and whose bad debts have hit smaller banks most keenly. At the same time, ADCB said it reduced money set aside to cover bad debts in the fourth quarter, a feat achieved only by a handful of lenders.
The bank said its profit in the last three months of the year increased to Dh1.19 billion compared to Dh1.02bn in the same period the previous year.
Net interest income and Islamic finance income increased 6 per cent year-on-year in the fourth quarter to Dh1.47bn, while non-interest income rose 9 per cent in the same period to Dh539 million.
"The challenges that ADCB's corporate clients face include the decline in oil prices and tighter credit and liquidity conditions in the UAE market," ADCB said.
“We have consistently and thoroughly monitored these challenges while taking a number of steps to address them, including focusing on quality small and middle-market lending while also materially reducing our exposure to corporate revolving credit positions and exiting certain stressed lending relationships.”
Small businesses and individuals have been shying away from borrowing, and banks have also become more reluctant to lend at a time when bank deposits are dwindling amid lower government revenues from the sale of crude oil. The price of oil has slumped more than 70 per cent since the summer of 2014 amid rising supplies and weakening demand as the global economy slows.
As well as less demand from SMEs, banks have also been making it more difficult for these businesses to borrow. When the economy begins to sour, they are usually first in the firing line. Higher interest rates are also making firms and individuals think twice about taking a loan.
Among the winners in the fourth quarter, ADCB is joined by Emirates NBD and Dubai Islamic Bank. Emirates NBD, Dubai’s biggest lender by assets, said this month that its fourth-quarter profit rose 74 per cent as its provisions fell.
Elsewhere, FGB said yesterday that its net income in the fourth quarter gained 11 per cent to Dh1.71bn versus Dh1.55bn in the same period the previous year, boosted by "other operating income".
The gain in fourth-quarter income came even as provisions rose, loans and advances fell and income from fees declined. Net other operating income jumped 158 per cent to Dh681m in the fourth quarter year-on-year, it said.
“Although global economic conditions appear to be challenging in 2016, it is a market reality that the UAE has always overcome downturns, and re-emerged with a stronger momentum,” said Andre Sayegh, the chief executive of FGB.
“A key factor behind the UAE’s resilience is its strong competitiveness and the unique advantages it offers as a business environment, including state-of-the-art infrastructure, an environment of low taxation, a strong regulatory framework and a strategic geographical location within the reach of billions of consumers.”
mkassem@thenational.ae
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