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UAE bank shares may weaken after tepid Q3

Two Abu Dhabi lenders reported mixed earnings.

October 27, 2010 1:25 by

Bank stocks in the United Arab Emirates may weaken on Wednesday after two Abu Dhabi lenders reported mixed earnings.

National Bank of Abu Dhabi reported near-flat profit growth in the third-quarter to miss analysts’ forecasts, while Abu Dhabi Commercial Bank’s quarterly profit surged, although this was largely derived from trading and investment income, rather than its core business.

“All banks are showing flat to negative loan growth – their capital adequacy levels are very high and even increasing, which shows banks remain very cautious,” says Robert McKinnon, ASAS Capital chief investment officer.

“In terms of capital efficiency, they are being very inefficient, which could indicate they feel there’s more risk in their loan book.”

NBAD’s shares equalled a 10-month high on Tuesday, while ADCB is up 48 percent since Aug. 31.

“Stocks have run up quite a bit in anticipation of earnings and I don’t think these have been as good as expected, so we might see some weakness as investors reallocate from banks to other sectors,” adds McKinnon.

(Reporting by Matt Smith; Editing by Jason Benham)

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