Abu Dhabi banks beat Q3 profit forecasts

Q3 RESULTS: First Gulf Bank posted a 9.4 percent rise in third quarter net profit to $253.2m. (ITP Images)

Abu Dhabi-based First Gulf Bank (FGB) and Union National Bank (UNB) both reported higher-than-expected quarterly earnings on Wednesday, overcoming a rise in provisioning for bad loans.

FGB, Abu Dhabi's second largest bank by market value, reported a 9.4 percent rise in third-quarter net profit to AED930m ($253.2m), beating an average AED762m forecast from analysts polled by Reuters.

UNB posted a 38 percent drop in net profit to AED358m, weighed down by impairment charges and a decline in income from investments, but still above forecasts by four analysts who had pencilled in AED256.13m.

Third-quarter earnings from banks across the Gulf Arab region have been overshadowed by the need for provisioning against impairments after the slowdown in the global economy led to a liquidity shortage and tighter lending conditions.

But analysts believe Abu Dhabi has fared better than some feared, owing to a wealth of resources that have enabled it to absorb losses and provide the required funding.

"We believe the expansion of Abu Dhabi and more general infrastructure spending will ensure positive growth," EFG Hermes said in a research note earlier this month.

However exposure to Saudi conglomerates Saad and Ahmed Hamad al Gosaibi is still weighing on the balance sheets of regional banks. Though disclosure has been minimal, FGB on Wednesday admitted to $104m in exposures to the two groups.

FGB said it had roughly doubled its provisions against bad loans from the previous two quarters and planned to continue provisioning until the end of 2010.

"Over the coming five quarters ending in 2010, the bank would take an additional AED174m into provisions, which should be easily absorbed by the existing high level of general provisions and by the strong earning momentum of FGB," Chief Executive Andre Seyagh said in a statement.

Moussa Haddad, head of the MENA trading desk at National Bank of Abu Dhabi, said: "FGB's results were better than estimated in the market and give an idea of how banks will perform at the end of the year.

"If the bank is taking provisions and still making money, then it's doing very well. Revenues are helping a lot," Haddad said.

FGB earned 58 percent of its revenue from interest and Islamic finance, 18 percent from corporate and retail fees and commissions, 11 percent from foreign exchange derivatives and investment income and 13 percent from subsidiaries and associate companies.

UNB booked AED31.39m in impairment losses, while Shuaa analysts expected AED107m. "Deviation from our (net profit) forecast exclusively stemmed from lower than expected provisioning expenses," said a note from brokerage Shuaa Securities. (Reuters)

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