Dubai Banks

In spite of decrease loan growth and global crisis, it is generally believed that banks within the United Arab Emirates (UAE) will record an increase amount of profits in the third financial quarter of 2014.

The UAE banks have shown an increase in profitability and troubles concerning liquidity of funds seem to have alleviated. The Non-Performing Loans (NPL) has marked a noticeable decline from 8.7% in 2012. In 2013 the NPL was recorded at 8.1% thus decreasing 0.6% and is expected to fall to 7.4 in 2014.

The UAE banks are presumed to show increased profits made by lower provisions and a strengthened loan growth reference to the consumer banking business. In accordance to SICO, an investment bank based in Bahrain, due to the obvious increased confidence within the corporate sector, UAE banks are presumed to record higher asset growth rates and profits because of the increased business the real estate sector is generating and higher levels of state spending.

Credit growth increased by approximately 4% in UAE’s banking sector in the first half of 2014. Expert analysts anticipate the growth will reach 7% by the end of 2014, and is anticipated the growth rate will increase even further in the following year. Standard & Poor’s, a credit rating agency, anticipate credit growth will increase by 8-9% in 2014-2015. This credit growth is anticipated based on the state’s spending and diversified business sectors that are growing, apart from oil dependant sectors.

In accordance to the Purchasing Managers Index (PMI), the UAE’s economic sectors, without taking into consideration oil companies, strengthened tremendously in August-September. Additionally, the pace in which non-oil companies expanded was rapid within the previous three months.

Experts believe UAE banks will remain healthy in 2014, and will be enhanced further by its diversified sectors (non-oil companies), increase in real estate and low interest rates. The rise in quality real estate together with the growth in credit demand in the corporate sector will inevitably lead to a rise in profits.

Standard & Poor’s anticipates that banks based in Dubai will grow at a faster pace compared to other banks in the emirates, like Abu Dhabi for instance. This is due to the fact that Dubai-based banks were cautious with approving loans from 2009 to 2012. In 2013, Dubai-based banks started lending since the majority of banks advanced and developed their funding profiles and quality of assets.

During the previous month, Dubai’s Islamic Bank announced its loan forecasts for 2014. Previously, the bank presumed it would lend 10%-15%, whereas now it anticipates lending 15%-20% in 2014.

Expert financial advisors and professional bankers state that margin compression is an issue that all UAE banks will need to deal with. Nonetheless, they remain confident that the banks will remain healthy and retain their high profitability rates although the increased competition they will face, and consequently lead the UAE banks to higher levels of liquidity and lower margin compression rates.   

In September 2014, analysts announced that UAE banks are expected to increase their profitability, improve their liquidity and remain capitalised.