Abu Dhabi bank trio hurt by bad loans amid weak economy

NBAD, ADCB and FGB all said the business environment was tough, partly reflecting the impact of a near two-year slump in oil prices on the wider economy
By Reuters
Thu 28 Apr 2016 09:26 AM

Abu Dhabi's three largest banks reported a slide in first-quarter net profits on Wednesday, mainly the result of higher bad debt provisions.

The bosses of National Bank of Abu Dhabi (NBAD), Abu Dhabi Commercial Bank and First Gulf Bank all said the business environment was tough, partly reflecting the impact of a near two-year slump in oil prices on the wider economy.

Banks have been grappling with tighter liquidity at a time when defaults have risen among small and medium-sized businesses and some larger companies are also struggling with debt repayments.

"We expect provisions to be higher this year as non-performing loans increase from higher exposure to the SME sector and also because of debt restructuring relating to certain large companies," Chiradeep Gosh, banking analyst at Bahraini investment bank SICO, said.

NBAD, the emirate's largest bank by assets, reported a 10.7 percent fall in net profit on an annual basis to 1.27 billion dirhams ($345.8 million) in the quarter ending March 31 as impairment charges rose and revenues dropped.

Two analysts polled by Reuters had forecast a profit of 1.28 billion dirhams and 1.45 billion dirhams respectively.

Revenues reached 2.65 billion dirhams, down from 2.68 billion dirhams. Impairment charges were 295 million dirhams, up 73.3 percent on the corresponding period last year.

The bank blamed a deterioration in credit quality within the small business sector for the rise.

NBAD Chief Executive Alex Thursby said the bank's provisions were expected to experience a slow decline in subsequent quarters, but it would have to manage the situation carefully. Chief Financial Officer James Burdett said he was confident NABD could produce single-digit earnings growth in 2016.

Abu Dhabi Commercial Bank set aside 352.2 million dirhams for bad loans in the first quarter, compared with 241.3 million dirhams in the same quarter last year.

The rise in provisions contributed to an 18.2 percent fall in first-quarter net profit to 1.02 billion dirhams at the bank, which is the second largest by assets in Abu Dhabi.

Two analysts polled by Reuters had forecast net profit of 1.13 billion dirhams and 1.28 billion dirhams respectively.

The bank said much of the rise in provisions was due a bolstering of general provisions to account for an increase in loan book size in light of current market conditions.

"In a very challenging operating environment we remain committed to preserving and protecting the long term financial strength of the bank," Chief Executive Ala'a Eraiqat said.

First Gulf Bank reported a 6 percent fall in first-quarter net profit to 1.33 billion dirhams in the quarter as income from fees and commissions fell.

Two analysts polled by Reuters had forecast a net profit for the third largest bank by assets in Abu Dhabi of 1.27 billion dirhams and 1.51 billion dirhams respectively.

Fees and commission income was down 10 percent at 365 million dirhams. Bad loan provisions were 376 million dirhams at the end of the quarter, up 1 percent on the same period in the previous year.

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Last Updated: Thu 26 Jan 2017 01:27 PM GST

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