UAE banks still cautious on lending

UAE banks still cautious on lending

Emirates NBD sees loan growth at 3-4 pct in 2011; Banks still unwilling to lend; New c.bank regulations on lending curbs to affect banks; Dubai exposure still weighs on banks

April 27, 2011 3:58 by Reuters

A trio of major UAE banks posted strong quarterly profits on Tuesday partly due to lower bad debt provisions but muted loan growth showed the lingering effects of Dubai’s debt crisis.

The crisis forced banks in the United Arab Emirates to make record provisions for bad loans, which hurt their profits and curbed the loose lending practices that were common before the crisis hit.

While prospects for loan growth in some of the other Gulf states such as Qatar are brighter, UAE banks are likely to remain conservative this year partly due to new central bank regulations restricting certain lending practices.

In addition, local banks are heavily exposed to investments in Dubai’s battered real estate sector – showing insignificant signs of recovery – as well as indebted government-linked entities.

Dubai Group, a unit of conglomerate Dubai Holding, owned by the emirate’s ruler, is currently in talks with banks as is Investment Corporation of Dubai (ICD), which is negotiating a $4 billion refinancing of a syndicated loan due this year.

In such an environment, a return to tangible corporate lending appears far off.

“We’re probably looking at no better than mid-single digit growth in loans for the year [for UAE banks],” said a UAE-based banking analyst.

“That’s not healthy growth in any circumstance”.

Dubai’s largest lender by market value, Emirates NBD saw a 27 percent jump in quarterly profit, boosted by a one-off gain of 1.8 billion dirhams ($490.2 million) from its sale of Network International, which helped it offset increased provisions.

But lending fell 1 percent from the previous quarter, and Chief Executive Officer Rick Pudner said he expected low single digit growth over the year.

Abu Dhabi Lending Also Tight

Two of Abu Dhabi’s major lenders, Abu Dhabi Commercial Bank (ADCB) and Abu Dhabi Islamic Bank (ADIB) also reported earnings on Tuesday.

The former posted a forecast-beating first quarter profit which more than doubled from the prior-year period helped by lower loan provisions and a rise in non-interest income. Gross loans fell 2 percent in the first quarter compared to the previous quarter, a statement said.

Similarly, lending was muted at ADIB in the first quarter, inching up to 48.1 billion dirhams at the end of March from 48 billion dirhams in Dec 2010. First quarter profit rose 3 percent.

“We are aware of the increasingly competitive environment in which we operate in the UAE and the increased regulatory oversight that is being brought to bear on the market as a whole, all of which makes the year ahead a challenging one and we therefore expect single digit growth in both assets and liabilities,” Mohamed Tirad, CEO of ADIB said.

(Reporting by Rachna Uppal; Editing by Jane Merriman)