Analysts expect low Q2 results for Gulf banks

PROFITS DOWN: Gulf Arab banks, like Dubai-based Emirates NBD, will see lower Q2 profits, analysts say. (Getty Images)

Gulf Arab banks will post lower second-quarter results as the cost of the credit crisis mounts and worries persist about exposure to troubled Saudi conglomerates, analysts said.

Two of the region's biggest banks, Dubai-based Emirates NBD and National Bank of Abu Dhabi, are likely to see quarterly net profit decline by 27 percent and 36 percent, respectively, according to analysts' estimates.

"The fundamental banking picture in the UAE may not look too rosy for the next 12-18 months," said analysts at J.P. Morgan in a recent research note.

Emirates NBD, the largest bank in the region by balance sheet size, already signalled that earnings growth would be under pressure from a rise in non-performing loans.

Deeper concerns linger over banks' exposure to two troubled Saudi conglomerates, Saad Group and Ahmad Hamad Algosaibi & Bros.

The high-profile Saudi cases and the bursting of Dubai's property bubble are two examples of how the credit crisis has hit the energy exporting region and both are expected to force banks to make provisions.

Banks face billions of dollars in potential losses to the Saudi groups. Banks, however, may sidestep provisioning in the second quarter, deferring it to later in the year.

"The reality is that most management teams here don't really have the experience to deal with (Saad and Algosaibi) – this is really a test for them," a Dubai-based analyst said.

Most Saudi banks are expected to post profit declines with Riyad Bank quarterly net profit seen declining by around 34 percent, according to forecasts by EFG Hermes and Bakheet Investment Group.

For Samba Financial Group, analysts surveyed expect a fall of 6.65 percent, on average. But Al-Rajhi Bank, the region's biggest bank by market capitalisation, is seen posting profit gains of 6.35 percent, on average.

Kuwaiti banks are also poised to report weaker second-quarter profits this month, according to a Reuters poll.

EFG-Hermes expects National Bank of Kuwait, the country's biggest bank by assets, which is expected to kick off the earnings season by next week, to post a 26.88 percent net profit drop in the second quarter.

Kuwait Finance House (KFH), the country's biggest Islamic bank, is seen reporting a 51.16 percent decline.

Global Investment House, Kuwait's biggest investment bank, is projected to see net profit fall 73 percent, according to Shuaa Capital, after posting a first-quarter net loss on investments.

The region's lenders will also see income from fees and interests edging lower as a result of easing business activity.

On the positive side, banks may benefit from higher oil prices and a credit market that is gradually opening up again.

Gulf banks are also expected to remain well capitalised and profitable, even in the case of a strong rise in defaults.

The biggest Gulf banks' tier one ratios – a measure of their capital strength – are higher than their emerging markets peers, sufficiently protecting them against an economic downturn, analysts said.

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