The head of the UAE Banks Federation expects higher loan growth and profitability for banks in 2018 as the economy turns the corner and lenders reduce the amount of non-performing loans that piled up during the SME debt crisis in the wake of the 2014 oil crash.
"Despite everything that's happening around us, we are seeing growth," Abdulaziz Al Ghurair told reporters in Dubai on Monday. "It will be better this year from last [year] despite the challenges. Net profit will also grow this year, hopefully better than last year."
“The economy is going to grow 3 to 4 per cent and with the oil prices stabilising that’s good news because we will benefit."
The banker, who is also the chief executive of Dubai-based Mashreq Bank, forecast loan growth of 5 per cent to 6 per cent on aggregate for banks in the UAE this year compared to 4 per cent last year. At the same time, the profitability of banks is likely to exceed the 8 per cent growth seen in 2017 compared with 2016.
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Read More:
S&P Global Ratings forecasts flat loan growth for GCC banks in 2018 and 2019
Commercial Bank International expects 5 per cent loan growth in 2018 as oil and debt demand pick up
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It's not just Mr Al Ghurair who is upbeat about the prospects of UAE banks this year. Other chief executives and analysts who track the fortunes of lenders are also optimistic. Mark Robinson, the chief executive of Commercial Bank International, recently told The National that he is expecting 5 per cent loan growth for the bank. Analysts including Saeeda Jaffar at consultants Alvarez & Marsal see non-performing loans declining and rising interest rates giving a boost to net interest margins.
Higher interest rates on the dirham, which is pegged to the US dollar and follows the monetary policy of the Federal Reserve, will boost the profitability of banks overall even though the UAE is at a different point in the economic cycle. While the US economy is buoyant, the UAE is still recovering from the fallout from the oil crash. Banks in particular are still hurting from big holes in balance sheets caused by SMEs going under in the years following the oil slump.
Still, the senior banker said that banks are becoming more cautious about lending to SMEs and are now asking for collateral from owners, a move that will allow them to lend to them at better rates. At the same time, as the bankruptcy law kicks in, more SME owners that fled the country are coming back to renegotiate bad debts they left behind. That’s especially the case as banks become more willing to renegotiate with insolvent businessmen, he said.
"The SME honeymoon is over," Mr Al Ghurair said. "In the last three years, banks supported SME lending, thinking that this will be an engine to drive the economy and was given without many conditions. Today, with the experience we have on the SME lending...we really will know who is worth lending to, and who is not."
The executive said he was still waiting for a review from the central bank on whether or not banks can pass on VAT to customers for fee and commission services or whether they have to absorb it which most are currently doing. VAT is not applied to interest from loans.
Mr Al Ghurair also said that the central bank would start next month a new way of calculating rates of the Emirates Interbank Offered Rates that would bring about more transparency and accuracy, especially as external auditors, which he didn't name, will be monitoring the rates.
The specs: 2018 Maxus T60
Price, base / as tested: Dh48,000
Engine: 2.4-litre four-cylinder
Power: 136hp @ 1,600rpm
Torque: 360Nm @ 1,600 rpm
Transmission: Five-speed manual
Fuel consumption, combined: 9.1L / 100km
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Mina Cup winners
Under 12 – Minerva Academy
Under 14 – Unam Pumas
Under 16 – Fursan Hispania
Under 18 – Madenat
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How Tesla’s price correction has hit fund managers
Investing in disruptive technology can be a bumpy ride, as investors in Tesla were reminded on Friday, when its stock dropped 7.5 per cent in early trading to $575.
It recovered slightly but still ended the week 15 per cent lower and is down a third from its all-time high of $883 on January 26. The electric car maker’s market cap fell from $834 billion to about $567bn in that time, a drop of an astonishing $267bn, and a blow for those who bought Tesla stock late.
The collapse also hit fund managers that have gone big on Tesla, notably the UK-based Scottish Mortgage Investment Trust and Cathie Wood’s ARK Innovation ETF.
Tesla is the top holding in both funds, making up a hefty 10 per cent of total assets under management. Both funds have fallen by a quarter in the past month.
Matt Weller, global head of market research at GAIN Capital, recently warned that Tesla founder Elon Musk had “flown a bit too close to the sun”, after getting carried away by investing $1.5bn of the company’s money in Bitcoin.
He also predicted Tesla’s sales could struggle as traditional auto manufacturers ramp up electric car production, destroying its first mover advantage.
AJ Bell’s Russ Mould warns that many investors buy tech stocks when earnings forecasts are rising, almost regardless of valuation. “When it works, it really works. But when it goes wrong, elevated valuations leave little or no downside protection.”
A Tesla correction was probably baked in after last year’s astonishing share price surge, and many investors will see this as an opportunity to load up at a reduced price.
Dramatic swings are to be expected when investing in disruptive technology, as Ms Wood at ARK makes clear.
Every week, she sends subscribers a commentary listing “stocks in our strategies that have appreciated or dropped more than 15 per cent in a day” during the week.
Her latest commentary, issued on Friday, showed seven stocks displaying extreme volatility, led by ExOne, a leader in binder jetting 3D printing technology. It jumped 24 per cent, boosted by news that fellow 3D printing specialist Stratasys had beaten fourth-quarter revenues and earnings expectations, seen as good news for the sector.
By contrast, computational drug and material discovery company Schrödinger fell 27 per cent after quarterly and full-year results showed its core software sales and drug development pipeline slowing.
Despite that setback, Ms Wood remains positive, arguing that its “medicinal chemistry platform offers a powerful and unique view into chemical space”.
In her weekly video view, she remains bullish, stating that: “We are on the right side of change, and disruptive innovation is going to deliver exponential growth trajectories for many of our companies, in fact, most of them.”
Ms Wood remains committed to Tesla as she expects global electric car sales to compound at an average annual rate of 82 per cent for the next five years.
She said these are so “enormous that some people find them unbelievable”, and argues that this scepticism, especially among institutional investors, “festers” and creates a great opportunity for ARK.
Only you can decide whether you are a believer or a festering sceptic. If it’s the former, then buckle up.
'THE WORST THING YOU CAN EAT'
Trans fat is typically found in fried and baked goods, but you may be consuming more than you think.
Powdered coffee creamer, microwave popcorn and virtually anything processed with a crust is likely to contain it, as this guide from Mayo Clinic outlines:
Baked goods - Most cakes, cookies, pie crusts and crackers contain shortening, which is usually made from partially hydrogenated vegetable oil. Ready-made frosting is another source of trans fat.
Snacks - Potato, corn and tortilla chips often contain trans fat. And while popcorn can be a healthy snack, many types of packaged or microwave popcorn use trans fat to help cook or flavour the popcorn.
Fried food - Foods that require deep frying — french fries, doughnuts and fried chicken — can contain trans fat from the oil used in the cooking process.
Refrigerator dough - Products such as canned biscuits and cinnamon rolls often contain trans fat, as do frozen pizza crusts.
Creamer and margarine - Nondairy coffee creamer and stick margarines also may contain partially hydrogenated vegetable oils.
Formula Middle East Calendar (Formula Regional and Formula 4)
Round 1: January 17-19, Yas Marina Circuit – Abu Dhabi
Round 2: January 22-23, Yas Marina Circuit – Abu Dhabi
Round 3: February 7-9, Dubai Autodrome – Dubai
Round 4: February 14-16, Yas Marina Circuit – Abu Dhabi
Round 5: February 25-27, Jeddah Corniche Circuit – Saudi Arabia
