Dubai – Mubasher: The UAE's five largest banks reported solid profits in the fourth quarter of 2016, Moody's Investors Service said in a report released Monday.
The banks are: Emirates NBD, last given an A3 Stable rating by Moody's, the National Bank of Abu Dhabi (NBAD), given Aa3 Negative, Abu Dhabi Commercial Bank (ADCB), given an A1 Negative rating, First Gulf Bank (FGB), given A2 Positive, and Dubai Islamic Bank (DIB), given Baa1 Positive.
"We expect the five large United Arab Emirates banks' core profitability to remain solid over the next 12-18 months," says Nitish Bhojnagarwala, assistant VP at Moody's.
"However, we anticipate pressure from rising funding costs as liquidity continues to tighten, and as banks increase their reliance on wholesale funding," the analyst added.
The five banks announced achieving a solid combined net profit of AED 6.8 billion ($1.8 billion) in Q4-16, Moody's said, noting that this was despite a decline in the UAE's non-oil real gross domestic product (GDP) growth to 2.5% in 2016 from a peak of 6.4% in 2012. The decline was due weak oil prices.
"This performance was underpinned by higher fee and commission income from retail and corporate lending services. Overall, the core operating income was stable when compared with Q4-15 and 2% higher versus Q3-16" the analyst noted.
This performance has helped offset a modest increase in both operating expenses and higher funding costs, which were up to 1.2% from 0.9% a year earlier due to tightening liquidity conditions, the report showed.
Impairment charges declined for most banks in Q4 due to notable increases in loan loss coverage ratios, which have resulted in adequate financial buffers.
"We expect a rise in impairment charges in 2017, however, driven by the continued economic slowdown" Nitish said.
Overall net profitability in Q4-16 was 2% lower quarter-on-quarter, and 5% lower year-on-year, Moody's noted, adding that the fall was "largely driven by decline in "other" income, including one-off gains, dividends from investments, and other non-recurring income."
