UAE banks set aside AED4bn for bad loans in Q3

Central bank data shows largest quarterly jump in provisions this year.
UAE banks set aside AED4bn for bad loans in Q3
By Rachna Uppal
Tue 17 Nov 2009 06:18 AM

UAE banks set aside a further AED4 billion in specific provisions for non-performing loans in the third quarter, according to data published on the central bank's website, but the pace of increase appears to be slowing.

Provisions for NPLs at Sept. 30 set aside for specific defaults totalled AED27.8 billion, compared with 23.9 at the end of June, the largest quarterly jump this year.

At the end of September 2008, the figure for specific NPL provisions stood at AED18.6 billion.

Total provisions, including general provisions, equalled AED36.7 billion at Sept. 30, an increase of 3.2 billion from AED33.5 billion at the end of the previous quarter.

In contrast, provisions grew by 5.3 billion dirhams in the second quarter, showing a slowdown in default rises.

"NPLs are often a lagging indicator of the health of the general economy," said Deepak Tolani, banking analyst at Al Mal Capital.

"Although specific provisions are increasing, from a general economic perspective, we can see a slowing down of NPL growth, even though they are still growing."

Figures for October, released on Monday, suggest this is the case. Total provisions reached AED38.3 billion at the end of October, an increase of 4 percent month on month.

The bottom line numbers at several UAE banks showed that third-quarter profit was hard hit by an increase in impairments for bad loans.

Federal initiatives to support banks facing depleted deposits and tighter lending have included AED150 million in liquidity and deposits from the finance ministry and the central bank, combined.

The government also pledged to guarantee all deposits and interbank lending.

Central bank data showed that bank deposits increased to AED977.2 billion at Sept. 30 from 961.7 billion at the end of the second quarter.

The capital adequacy ratio, an indicator of a bank's financial strength, stood at 18 percent at the end of September, up from 13 percent in the year-ago period. (Reuters)

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