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Dubai: Fourth quarter dents profits

Given the emirate’s imploding real estate market and economy, some local banks in Dubai announced surprisingly strong results for 2008. But developments in the second half, and especially the final quarter, reduced results for the year as a whole.

Net profit in 2008 of Emirates NBD, the UAE’s biggest bank, was down 7% from 2007 at about Dh3.7 billion ($1 billion). In contrast, the bank reported an increase in net profits of 33% for the first nine months of the year compared with the first nine months of 2007.

Emirates NBD’s performance was adversely affected by impairments and write-downs of Dh2.26 billion. This was a reflection of market-wide devaluation of equity and fixed-income markets and increased risk premiums, the bank said in a statement.

Comfortable with real estate

Shortly before yearly results were announced last month, Sanjay Uppal, CFO at Emirates NBD, told Euromoney: "We have seen no material uplift in delinquencies." In a statement accompanying annual results, the bank said it remains comfortable with its overall real-estate exposure. This is despite an average fall in asking prices for property in Dubai of about 25% since a peak in September last year, according to Morgan Stanley.

"I think it is a disaster if banks altogether stop lending completely"

Abdul-Aziz Al Ghurair, Mashreq Bank

Abdul-Aziz Al Ghurair, Mashreq Bank

Mashreq, Dubai’s largest privately owned lender, and an important player in the retail segment, reported profit down 13.6% in 2008 to Dh1.64 billion. However, the bank’s profit rose 22.6% in the first half of 2008, compared with the first half of 2007. Mashreq’s investment activity suffered from a loss of Dh335 million in 2008. The bank also added Dh107 million to general provisions, bringing total provisioning to Dh762 million. That is an equivalent of 1.36% of the bank’s performing loans and advances portfolio – the highest such proportion among UAE banks.

In an interview with Euromoney, Abdul-Aziz Al Ghurair, chief executive of Mashreq Bank, says he has not suspended his mortgage business, even if terms and conditions are now stricter (with up to 50% equity requirements and more attention paid to economic sectors in which borrowers work and the length of time they have spent in the country). He says his bank has not seen a single customer default.

"I think it is a disaster if banks altogether stop lending completely," he says.

Mashreq announced a headcount cut of 4% last month.

Analysts expect further increases in Dubai banks’ provisioning during 2009 as price falls in the emirate’s property market continue to have an impact on the economy.

Project hold-ups

"Projects generally are being delayed, postponed, or cancelled. This will have a knock-on effect on contractors, sub-contractors, and suppliers. Many people are losing their jobs, and many of these will also lose their right to reside in the country," an analyst says.

"Lack of economic diversification in Dubai will limit local banks’ scope to steer their loan portfolios away from real estate," the analyst says.

The UAE central bank announced a 10% cap on bank lending last month. It delayed annual reporting shortly before results were due, asking banks not to announce results to the media before having them approved.