UAE bank profits forecast to plummet by 50% Q109

Profit at UAE banks will more than halve in the first quarter of the year compared with the year earlier period, but may rise on the quarter, according to an analysis by HC Brokerage.

The eight UAE banks covered by HC are expected to post a first quarter profit decline of 52.8 percent year on year.

But net income is expected to rise by 109.3 percent on the quarter, said a team of analysts at the brokerage.

Bad loan charges should ease to AED1,066m ($290m) from AED1,897m ($516m) in the fourth quarter of last year, but would remain high compared with the first quarter of 2008 when bad loans totaled AED565m ($154m), they added.

HC said that although there are signs liquidity is improving, it expects banks to lower their loan to deposit ratios before increasing lending, which has slowed as a result of the global crisis.

Deteriorating asset quality would remain an issue throughout the year, the bank cautioned.

“We would like to note that the banks’ non performing loans figures are set to be threatened further during June 2009 as more expatriates are expected to leave the country after the end of the academic year,” it said.

“We also expect that investment write downs would decrease over the course of the year, as the biggest chunk of write downs and provisions have been accounted for during the fourth quarter of 2008.”

In contrast, Ahmed Al Tayer, chairman of the country’s largest bank, Emirates NBD, said last week that he believed UAE banks would post a rise in profits and assets in the first quarter.

Al Tayer, who is also the vice chairman of the Emirates Banks Association, said: “Q1 will show growth in assets,” Tayer said on the sidelines of a banking conference last Sunday, without elaborating on where the growth would come from.

Yet, HC has said it expects Emirates NBD to be the worst performing bank in the first quarter, with net income dropping 98 percent on the year, as a result of provisions for bad loans and investments

It expects First Gulf Bank to be the top performer, with net income dropping by only 12 percent after the Abu Dhabi based bank made most of its provisions in 2008.

HC has a buy rating on Emirates NBD and a hold recommendation on First Gulf Bank.

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