UAE banks' asset quality on the rise

The first-half results of UAE banks showed sustained improvement in asset quality, which was evident in the consistent decline in non-performing loans (NPLs), loan loss provisions and significantly improved NPL coverage ratio.

Additionally, the second-quarter results show banks have been fortifying their balance sheets on the liability front, with a strong deposit base for a cost-effective funding base in preparation for a potential US interest rate hike before the end of this year.

Analysts said the sector has seen a greater push to garner time deposits during the quarter as banks locked in liquidity ahead of expected rate hikes towards the second half of this year.

While ENBD's deposits grew by 6 per cent during the first half of 2015, Mashreq and NBF's customer deposits were up 10 per cent and 8.5 per cent respectively.

In addition to improved current and savings account (Casa) funding through a strong deposit base, ENBD has been diligent in raising Dh8.9 billion of term-funding in the first half of the year. Term liabilities now represent 11 per cent of total liabilities and will help provide the bank with a strong cushion to deal with any future uncertainty in the global capital markets for the remainder of 2015.

"We took advantage of favourable market conditions to prudently raise nearly Dh9 billion of term-funding in the first half of 2015. This decision to ‘front load' our term-funding requirements is paying dividend even as we now see increased volatility in the global capital markets from a range of sources,” Surya Subramanian, Group Chief Financial Officer, said.

Balance sheet indicators point to overall asset quality improvement as risk normalisation gains traction in the second half of the year.

Mashreq's NPLs remained stable at Dh2.8 billion in June 2015, leading to a NPLs-to-gross loans ratio of 3.7 per cent at the end of June 2015. Net allowances for impairment for the first half of 2015 were at Dh423.9 million, as compared to Dh555.8 million in the first half of 2014.

Total provisions for loans and advances reached Dh3.7 billion, constituting 138.4 per cent coverage for NPLs as on June 30, 2015.

Abdul Aziz Al Ghurair, CEO of Mashreq, said the UAE economy is strong and stable and provides the right environment for growth.

"Looking to the wider economy, the rest of 2015 looks promising for Mashreq as the region's non-oil sectors continue to grow and expand,” he said.

For the first six months of the year, ENBD's impaired loan ratio improved to 7.4 per cent, from 7.9 per cent at the end of 2014. The impairment charge in the first half of 2015 of Dh1.98 billion is 24 per cent lower than in the corresponding period of 2014 following the ongoing risk normalisation this year.

These provisions, along with a healthy level of write-backs and recoveries, helped boost the coverage ratio to 109.8 per cent.

National Bank of Fujairah's net impairment losses were at Dh86.9 million at the end of the first half of the year, compared to Dh65.1 million in the same period last year. The quality of assets continued to improve as the NPL ratio declined from 4.8 per cent to 3.5 per cent. At the close of the fist half of this year, total provision coverage improved to 146.6 per cent from 118.5 per cent at June 30, 2014.

United Arab Bank's provisions for credit losses in the first six months of 2015 were at Dh134 million. With the current level of provisions, UAB has an NPL coverage ratio of 112 per cent, which represents 2.9 per cent of gross loans.
Source: Gulf News