NBAD and FGB results show pace of growth in bank sector has slowed

28/07/2016 05:49 AST

National Bank of Abu Dhabi (NBAD) and FGB said in their first earnings releases ahead of a planned merger that second- quarter profitability had waned as interest from lending slowed amid weakening economic growth and rising debt defaults.

Net income at NBAD slipped 4.8 per cent in the three months ended June 30 to Dh1.38 billion versus Dh1.44bn in the same period last year. Net interest income fell 0.2 per cent to Dh1.8bn versus Dh1.84bn as net impairment charges rose 79 per cent to Dh298 million.

Meanwhile, FGB said net income during the second quarter fell 10 per cent year-on-year, also weighed down by money set aside to cover bad debt and a drop in net interest income. Profit fell to Dh1.3bn from Dh1.45bn in the same period last year. Provisions rose 54 per cent to Dh398m compared to Dh258m a year earlier. Net interest and Islamic financing income decreased 3 per cent year-on-year to Dh1.56bn versus Dh1.6bn.

Alex Thursby, the chief executive of NBAD, said he expected that the loan market in the UAE would continue to slow but that the lender would be able to make money from other activities such as its international businesses and services that garner fees and commissions, rather than interest. Mr Thursby also said that there has been a drop-off in bad debt.

"We’re very positive about the second half," he said.

"It’s fair to say, however, that it’s a slower growing market in general. Growth in the UAE loan market will probably be slow, but we have other alternatives. We have our international businesses, rates and forex, cash management and our retail business will continue to grow, albeit at a slower pace."

Analysts were also positive about NBAD’s results despite the drop in earnings as the numbers for the second quarter beat expectations.

"A decent set of results," said Shabbir Malik, a Dubai-based banking analyst at EFG-Hermes, Egypt’s biggest investment bank.

"Earnings came 4 per cent ahead of our estimate as strong fee income offset higher-than-expected provisioning. Fee income growth continues to be impressive."

NBAD and FGB said this month that their boards had unanimously voted to recommend to their shareholders a merger of the two Abu Dhabi-listed banks in what would create a lender with US$175bn in assets, the largest in the Middle East.

Under the proposed terms, FGB shareholders would own about 52 per cent of the combined bank and NBAD shareholders the balance. It would leave the Government of Abu Dhabi and related entities with a 37 per cent interest in the bank. Shares of FGB would be delisted and the bank would be called National Bank of Abu Dhabi.

Abdulhamid Saeed, currently a board member and managing director of FGB, would be the chief executive for the combined bank.

Mr Thursby declined to disclose new information about the merger during the conference call yesterday after the results were released.

The National