The UAE's biggest banks are growing profits at full tilt and putting the worst of the financial crisis behind them despite tough new lending rules imposed by the Central Bank.
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Emirates NBD, the UAE's biggest bank by assets, was the latest lender to report higher earnings, recording a jump in second-quarter net profit of 84.8 per cent to Dh744.4 million (US$202.6m), compared with last year's second quarter.
The improved performance was helped by falling provisions for bad debts. Impairments on financial assets fell 17.7 per cent to Dh980.9m.
The improved profit at Emirates NBD "not only reflects the progress made by the bank in addressing the challenges posed during the last few years but also demonstrates our ability to take advantage of improved economic conditions and to deliver on a clear strategic course", said Rick Pudner, the bank's chief executive.
Though analysts had predicted a rather dull second quarter with few earnings surprises, many of the UAE's big lenders, including National Bank of Abu Dhabi (NBAD) and First Gulf Bank (FGB), have smashed estimates and posted record profits in spite of the Central Bank's new restrictions on retail lending.
A credit bubble that swelled during the boom years left many banks nursing balance sheets full of bad debts when the financial crisis set in.
This month, FGB reported a 13 per cent increase in second-quarter earnings over the same period last year, while NBAD's bottom line was up 2.5 per cent. Both banks beat analysts' estimates and increased lending.
Alongside the substantial year-on-year increases in profit, analysts' interpretations of the results are starting to change as the UAE's economy enters a recovery phase, said Raj Madha, a financial analyst at Rasmala Investment Bank.
"In Q2 of 2010, we were in the middle of seeing how bad things could get," he said. "In Q2 of 2011, what we're really looking for is when things are going to improve."
Though provisions have fallen at the UAE's big lenders, a recent report from Moody's Investors Service said there was still room for bad-debt numbers to rise. Non-performing loans at Dubai lenders are expected to reach as high as 14 per cent, up from 8 per cent at the end of last year.
Despite predictions that banks would see an impact as the Central Bank limited loan charges, lenders' margins have remained largely stable, but fee income has fallen, said Mr Madha.
"We were expecting a hit on fees and commissions, and we've seen that on the big banks that have reported so far," he said.
But improved liquidity in the banking system has meant lenders do not have to compete as aggressively for depositsand have been able to reduce the interest they pay on deposits while continuing to make money from lending, he said.