Top UAE Banks See Profits Surge as Impairments Drop on Recovery

(Bloomberg) --

The three largest banks in the United Arab Emirates reported a drop in impairment charges by nearly a third in the first half as they took advantage of an economic recovery from the Covid-19 pandemic.

Emirates NBD PJSC, Dubai’s biggest lender, and its counterpart in the UAE capital, First Abu Dhabi Bank PJSC, posted an increase in profit in the first half, supported by higher fee income and a drop in the cost of risk. Dubai Islamic Bank’s first-half impairments fell 29% even though profit dropped.

The results reflect an improvement in economic conditions in the UAE, OPEC’s third-biggest producer, whose vaccine rollout fed an upswing in activity and as oil prices rebounded. Executives emphasized lower-than-expected loan-loss charges, pointing to their banks’ strengthening balance sheets and adequate provisioning while still sounding caution about the outlook.

Emirates NBD’s profit rose 17% to 4.8 billion dirhams ($1.3 billion) and impairment allowances dropped by 38% in the first half, according to a statement Wednesday.

Its performance improved as “the impact of lower interest rates was more than offset by firm cost management and a significant improvement in the cost of risk to pre-pandemic levels,” said Group Chief Executive Officer Shayne Nelson.

First Abu Dhabi Bank said second-quarter profit rose 19% to 2.88 billion dirhams, helped by higher fee income and sharp gains in its investments and derivatives. Impairments dropped 36%, the lender said.

Emirates NBD 1H Results and Outlook:

• 1H total income 11.5 billion dirhams vs 12.6 billion
• 1H impairments 2.61 billion dirhams vs 4.21 billion
• 1H cost of risk 114bps vs 172bps
• NIM 2021 guidance raised to 2.40-2.50% from 2.35-2.45%
• Loan growth guidance for the year lowered to low-single digit from low/mid single digit

First Abu Dhabi Bank 2Q Results and Outlook:

• Profit 2.88 billion dirhams, +19% y/y
• Operating income 5.19 billion dirhams, +8.3% y/y
• Net interest income 2.80 billion dirhams, -14% y/y
• Impairments 677 million dirhams, -36% y/y
• 2Q cost of risk 63bps vs 108bps
• 2Q profit driven by double-digit growth in non-interest income
• 1H impairment charges at 1.1 billion dirhams, down 36% year-on-year, “reflecting improving economic conditions, and adequate provision buffers”
• 1H operating costs at 2.8 billion dirhams, up 7% year-on-year

Dubai Islamic Bank 1H Results

• Profit 1.86 billion dirhams, -12% y/y
• Total income 5.84 billion dirhams, -14% y/y
• Impairments 1.50 billion dirhams, -29% y/y

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