Bad loans cripple UAE banks in Q3
* Shrinking net interest income and rising deposit costs have eaten into the profits of the banks
* Reduced government spending has worsened liquidity
* First Gulf Bank reported a 31 per cent rise in Q3 net profit
Reduced government spending after the oil price decline has hurt UAE banks’ third quarter earnings. Nearly all of the lenders listed on the Dubai and Abu Dhabi bourses have posted declines in their quarterly net profits.
Shrinking net interest income and rising deposit costs have eaten into the profits of the banks, who have already been hit by tighter liquidity thanks to lower oil prices.
Most of the lenders had to reserve additional provisions to cover rising bad debts in the small and medium-sized enterprise sector during Q3 2016.
To see Q3 earnings of other banks, please click here.
Declining credit appetite
Moreover, credit appetite of banks in the country has been on a downtrend over the quarter.
A quarterly survey by the central bank showed a southward shift in overall credit appetite for both business and personal loans.
The net balance measure for business lending – the weighted percentage of respondents reporting an increase in demand for loans minus those reporting a fall in demand – fell to –2.3 for the September quarter from +3.1 in the previous quarter.
For the December quarter, however, respondents expect the net balance measure to rebound to +7.9, indicating demand for business loans is projected to increase.
First Gulf Bank (FGB), the third-largest lender by assets in the UAE, was the only major bank to report strong growth in net profit during the July-September period. The bank, which is being merged with rival National Bank of Abu Dhabi, posted a 31 per cent rise in quarterly net profit to reach AED1.86 billion from AED1.37bn in the same period a year earlier.