UAE's biggest banks set for 18% profit rise in 2010

New report by Global Investment also says revenue growth will slow.
UAE's biggest banks set for 18% profit rise in 2010
By Bloomberg
Mon 17 May 2010 03:05 PM

The UAE’s eight biggest banks may report an 18 percent rise in profit in 2010 and earnings may increase further if provisions from Dubai World’s debt restructuring aren’t high, Global Investment House said on Monday.

Revenue growth at the banks will slow while assets will expand at single-digit rates “as banks adopt a cautious stance,” the Kuwaiti investment bank said in a report.

Earnings may grow at an average annual rate of 26 percent over the next four years as UAE economic growth accelerates beyond the 2 percent to 3 percent rate expected this year, Global added.

Asset quality of the banks, which include market leader Emirates NBD and second-ranked National Bank Abu Dhabi, is expected to worsen by 1.3 percentage points in 2010 to reach 4.3 percent, the report said.

This may result from changes in UAE central bank regulations on loan provisions, losses from Dubai World’s debt restructuring and further delinquencies of consumer and property loans, the report said.

Earnings at UAE banks were hurt last year as the global credit crisis weakened lending and investment banking, while provisions for bad loans rose amid the economic slowdown.

The UAE economy may grow 2.5 percent to 3 percent in 2010, compared with 1.3 percent expansion in 2009, UAE Economy Minister Sultan Bin Saeed al-Mansouri said in April.

State-owned Dubai World’s plans to restructure $24.8 billion of debt is also weighing on the outlook for local banks. The global financial crisis led to a 50 percent decline in property prices in the city and hampered the ability of Dubai-based companies to raise loans to refinance debt.

This year “will be a difficult year for the UAE banking sector,” yet the outlook is still “positive,” highlighting the fact that the current issues are “manageable,” Global said.

The overall capital adequacy ratio, a measure of bank’s ability to withstand loses, was at 19 percent at the end of 2009, well above the regulatory requirement of 11 percent, the report said.

The eight banks covered by Global’s forecasts also include Abu Dhabi Commercial Bank, First Gulf Bank, Dubai Islamic Bank, Union National Bank, Abu Dhabi Islamic Bank and Sharjah Islamic Bank.

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