UAE credit bureau expectations evident in quarterly bank results

UAE bank second quarter earnings boosted by record low interest rates as individuals and corporation tap lenders.

The country’s banks started reporting second-quarter results yesterday, with some lenders continuing to post record income as low interest rates attract more individual and corporate borrowers to their doors.

But even as loan defaults decline amid a booming economy, some of the banks are increasing provisions for bad loans as they prepare themselves for the nation's credit bureau getting into full swing. That could reveal the extent of some individual indebtedness, which has thus far been difficult to track.

Abu Dhabi Islamic Bank, the emirate's biggest Sharia-compliant lender, said its net income in the quarter increased 22.5 per cent to a record Dh454.8 million as net financing advanced 15.4 per cent to Dh64.9 billion. At the same time however, the lender said it increased total provisions by 10.9 per cent during the quarter to Dh159.8m in anticipation of the credit bureau.

Last year, UAE lenders reversed years of sluggish growth as an economic renaissance and the diminishing costs of borrowing triggered demand for loans by individuals and companies for everything from cars to houses to industrial equipment.

The national economy, which grew by more than 5 per cent last year and is largely propelled by oil exports, is a bright spot in a global economy otherwise marked by anaemic growth. Stocks and real estate have by and large recovered from the battering they took in the aftermath of the financial crisis but there is concern that they are now starting to overheat. Al Etihad Credit Bureau, which was inaugurated this year, might also uncover individuals who have not notified their banks about loans they have taken out with other banks, and hence increase the amount banks must put aside to cover defaults.

“Notwithstanding our positive outlook we are closely monitoring the levels of consumer debt and the pending launch of the new UAE credit bureau, which will bring much welcomed clarity to the risk recognition of individual customers,” said Tirad Al Mahmoud, the chief executive of ADIB.

“Furthermore, while we have made significant progress in dealing with our legacy credit and real estate portfolios, we do not believe the impact of the recent financial crises on the UAE credit cycle has concluded and many non-performing customers are still under remedial action. Until these remedial discussions are concluded in a manner we consider sustainable we will continue our problem credit recognition, provisioning and related recovery management processes.”

Union National Bank, another Abu Dhabi-based lender, said its second quarter profit increased 6 per cent to Dh520m with loans and advances increasing 3 per cent year-on-year to Dh62bn. The bank noted that increased competition for customers had led to some margin compression. UNB's net interest margin fell to 2.86 per cent in the first half of the year, compared to 3.2 per cent a year earlier.

The Egyptian investment bank EFG Hermes said in a research note that UNB’s second-quarter net income missed its forecast of Dh545m because of losses that the bank incurred on its investments in the UAE stock market after the recent equity sell-off.

Elsewhere, Sharjah-based United Arab Bank said its net income in the first half of the year gained 41 per cent to Dh676m. Loans and advances increased 35 per cent to Dh17.9bn, it said.

“With this outstanding performance we are set to take advantage of the positive economic outlook for the UAE and the region,” said Paul Trowbridge, the bank’s chief executive.

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