Banks in the Gulf region are raising provisions to offset an expected increase in sour loans due to the twin shock of plunging oil prices and the coronavirus fallout
Abu Dhabi’s biggest lender joined its regional Gulf competitors in setting aside higher provisions to cover a spike in bad loans brought on by the coronavirus pandemic.
First Abu Dhabi Bank increased impairments to 1.06 billion dirhams ($289 million) from 467 million dirhams year ago. That resulted in second-quarter profit dropping 25%.
Banks in the Gulf region are raising provisions to offset an expected increase in sour loans due to the twin shock of plunging oil prices and the coronavirus fallout. First Abu Dhabi Bank follows Emirates NBD and Dubai Islamic Bank in increasing impairments charges.
The challenges are renewing the prospect for further consolidation among banks in the Middle East, with potential mergers being discussed in Saudi Arabia and Qatar. First Abu Dhabi Bank was created with the merger of two banks in 2016.
First Abu Dhabi Bank 2Q numbers
Group CFO James Burdett said, “In the context of a challenging and uncertain environment, we continued to build our provision buffers, leading to a substantial increase in impairment charges, while our high-quality portfolio and conservative asset mix are key differentiators.”