Goldman slashes UAE banks’ earnings estimates by 10%

Bank revenues will be hit by new curbs on consumer lending, say analysts
Goldman slashes UAE banks’ earnings estimates by 10%
Goldman Sachs cut its rating on Emirates NBD, the Gulf state’s biggest bank by assets
By Bloomberg
Mon 20 Jun 2011 02:50 PM

UAE banks had their earnings estimates cut by 10 percent on average
for the period from 2011 to 2014 by Goldman Sachs Group Inc. because of
consumer loan guidelines implemented in May.

“UAE banks will face top-line pressures emanating from
recently implemented consumer-finance regulation,” analysts led by William A.
Mejia and Waleed Mohsin said in a research report Monday.

The regulation will limit retail fee income as well as
overall consumer loan growth, according to the report.

The rules cap personal loans at 20 times a borrower’s
monthly salary and the repayment period at 48 months. They also restricts
overall installments for all loans, including personal, car, housing loans and
credit cards to 50 percent of a borrower’s gross salary and any regular income
as well as fees for several banking transactions, including AED25 ($7) for an
additional checkbook.

First Gulf Bank, a lender controlled by Abu Dhabi’s ruling
family, and Abu Dhabi Commercial Bank, the UAE’s third-biggest bank by assets,
are likely to be the most affected by the rules because the consumer segment
makes up about 30 percent of their business, Goldman Sachs said. The bank said
it had cut its assumptions for retail loan growth at all the UAE banks it
covers to 5 percent from 10 percent.

Share prices of UAE banks have increased by about 25 percent
this year and “no longer offer deep value across the board,” the report said.

The bank cut its rating on Emirates NBD, the Gulf state’s biggest
bank by assets, to neutral from buy, Dubai Islamic Bank, the biggest Islamic
lender, to sell from neutral and Abu Dhabi Commercial Bank to sell from a buy.

Goldman Sachs said it favoured Abu Dhabi banks to Dubai
banks because of expectations of stronger deposit growth.

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