Top UAE Banks Fare Better Than Expected With Payouts Intact

The two biggest banks in the United Arab Emirates reported a decline in annual profit that was less severe than expected as the lenders brace for the full brunt of the economic fallout from the coronavirus pandemic and lower oil prices.

Emirates NBD PJSC, Dubai’s biggest lender, and First Abu Dhabi Bank PJSC, its counterpart in the UAE capital, both maintained their dividend payouts for 2020 despite a surge in impairment losses as their buffers to protect depositors against shocks remained strong. Shares of both banks rose.

While an acceleration in the pace of vaccine distribution and a normalization in travel is helping to partly offset the drop in crude prices and output due to the Covid-19 outbreak, the economy is struggling to gain traction. The profitability of UAE lenders is expected to remain under pressure this year as the central bank phases out support measures introduced to shield the economy from the damage caused by the Covid-19 outbreak and bad debts climb, according to S&P Global Ratings.

Emirates NDB’s profit slumped by more than half in 2020 and impairment allowances increased by 65% and as a gain from the sale of a stake in Network International Holdings Plc in 2019 wasn’t repeated, it said in a statement Wednesday.

First Abu Dhabi Bank’s net income slid 15% after its loan-loss charges jumped 22%, it said in a statement on Tuesday. The company also appointed Hana Al Rostamani as the first female chief executive officer of the lender. She takes over from Andre Sayegh, who spent less than a year in the role.

Shares of First Abu Dhabi Bank, also known as FAB, rose as much as 2.7%, while those of Emirates NBD climbed as much as 2.2%, following gains in both benchmark indexes in the two cities.

What Bloomberg Intelligence Says:

FAB’s cost of risk fell to 64 basis points for 2020, below the expected 80 basis points. The bank performed well on lowering expenses and its funding cost, and realized gains to offset lower fee and forex spread

-- Edmond Christou, a financials analyst with Bloomberg Intelligence

Click here to read the research

First Abu Dhabi Bank expects its underlying operating performance to improve this year, but said it will stick with prudent provisioning. Emirates NBD, which is getting ready to set aside more capital for potential loan losses, doesn’t expect the full impact of Covid-19 on credit quality to be fully evident until later.

Emirates NBD results are good as “provisions have come down quarter-over-quarter, but still remain elevated,” said Divye Arora, a portfolio manager at Daman Investments in Dubai. Emirates NBD is being conservative and is front loading the provisions, which should reflect positively on 2021 results, he said.

QUICK LOOK:

Emirates NBD FY numbers:

  • Profit 6.96 billion dirhams vs 14.5 billion dirhams in 2019 (estimate 6.44 billion)
  • Impairment allowances 7.9 billion dirhams vs 4.8 billion dirhams
  • Total income 23.2 billion dirhams vs 22.4 billion dirhams
  • Net interest income 17.49 billion dirhams vs 16.19 billion dirhams
  • Cost-to-income ratio 33.8% vs 32.1%
  • Net interest margin 2.65% vs 2.89%
  • Proposes 40 fils/share 2020 dividend

Emirates NBD outlook:

  • Sees net interest margin of 2.35%-2.45% vs 2.65%
  • Cites lower interest-rate environment in the UAE and rising rates in Turkey
  • Cost to income expected to be 35%
  • Sees loan growth at low/mid-single digit vs 1%
  • Sees NPL ratio “increasing”

First Abu Dhabi Bank FY numbers:

  • Profit 10.6 billion dirhams, -15% y/y (estimate 9.25 billion dirhams)
  • Net interest income 12.3 billion dirhams, -3.7% y/y
  • Revenue 18.6 billion dirhams, -8% y/y
  • Cost of risk 63 basis points
  • Proposes dividend per share 0.74 dirhams

First Abu Dhabi Bank investor presentation:

  • Operating performance improvement to be driven by a “healthy government/GRE pipeline, continued focus on cross-sell and M&A (Egypt)”
  • Prudent provisioning to continue; to maintain cost of risk guidance below 100 basis points
  • Sees mid-single digit loan growth

©2021 Bloomberg L.P.

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