Tough central bank regulations aimed at controlling excessive lending in Gulf state
The banking sector in the UAE will experience slower but more sustainable growth due to tough central bank regulations aimed at controlling excessive lending, SICO Investment Bank said.
"A retail lending cap intended to lower retail clients' leverage will narrow banks' spreads and moderate retail lending at 2 percent to 3 percent year-over-year in 2012," the brokerage said in a note to clients.
Though the banks reported strong margin improvement last year, increased liquidity and corporates' low borrowing appetite might pressurise lending spreads in the future, SICO said.
"The rise in lending duration is also pushing banks to go for longer period fixed-income liabilities, which will negatively impact margins," the brokerage said.
However, SICO notes that the UAE banking stocks now provide value-buying opportunities for long-term investors as asset quality concerns led to overselling of the stocks.
The brokerage initiated coverage of the emirate's third-largest lender by market value, Abu Dhabi Commercial Bank , with a "neutral" rating and said the bank's non-performing loans in the first quarter have remained at a healthy level of 82 percent but a further rise in delinquencies might put pressure on its profitability.
SICO maintained its long-term "buy" rating on First Gulf Bank as it expects the lender's low operating costs and deployment of liquid assets to help sustain its profitability.
It also maintained its long-term "add" rating on Union National Bank and National Bank of Abu Dhabi.