- By Region
Bank results in the second quarter highlighted the divergent performances of lenders across the Gulf, as high provisioning still weighs on those in Dubai and Kuwait, dragging them behind their regional peers.
Emirates NBD, Dubai’s biggest bank by market value, posted a 13 per cent drop in second-quarter earnings, its fourth consecutive quarterly drop. The earnings fell as costs increased and the lender made further provisions on state-linked debt.
In Kuwait, where banks were hit by stock market losses and poor property investments, shares of the National Bank of Kuwait dropped the most in two years after the country’s biggest bank reported a 40 per cent decline in second-quarter profits. It set aside $96.4m in judgmental provisions.
While lenders in Dubai and Kuwait have struggled to bounce back, their counterparts in Qatar and Saudi Arabia have performed strongly. Analysts point to state expenditure as the main factor.
“We believe government spending to be the prime differentiating factor for banking-sector performance,” says Mandagolathur Raghu, head of research at Markaz, the Kuwaiti investment company.
Banks in Saudi Arabia, the largest Arab economy, have returned to lending as vast government spending plans helped to revive the banking system.
Bank credit grew at a healthy clip of 13 per cent in May from a year ago, according to central bank data. Of the 11 listed Saudi banks that have reported earnings, only one posted a loss.
Al Rajhi Bank, the kingdom’s biggest lender by market value, posted a 14 per cent increase in second-quarter profits. Jeddah-based National Commercial Bank, the kingdom’s biggest lender by assets, reported a 13 per cent rise in profits for the period.
In Qatar, where the government repeatedly propped up the banking sector during the financial crisis, Qatar National Bank, the state’s largest bank by market value, reported a 16.7 per cent increase in second-quarter profits as it continued to benefit from its strong exposure to government investment projects.
The small Gulf state is set to embark on large-scale infrastructure schemes as it prepares to host the Football World Cup in 2022, a move expected to stimulate banking business for Qatar’s lenders.
While its regional peers seem to have recovered from the high levels of provisioning during the financial crisis, Dubai’s state-linked banks are still ironing out their debt woes. The emirate and its entities has about $110bn in debt, according to recent estimates.
Dubai’s biggest lender, Emirates NBD, was merged with Dubai Bank by decree last year, following the nationalisation of the smaller lender. The merger would “have zero impact” on Emirates NBD’s profit and loss or non-performing loan numbers from the date of acquisition, Rick Pudner, Emirates NBD’s chief executive, said at the time of the deal.
However, costs rose 8 per cent in the second quarter compared with a year ago, but excluding Dubai Bank, costs would have fallen 4 per cent, according to Reuters.
Lending in the United Arab Emirates grew only 0.3 per cent in the first five months of the year. In Abu Dhabi, home to the bulk of the UAE’s oil wealth, the National Bank of Abu Dhabi posted a 2 per cent increase in net income for the second quarter. First Gulf Bank, another Abu Dhabi lender, saw quarterly profits rise 14 per cent.