A logo sits on display inside an Emirates NBD bank branch in Dubai. First-quarter profit at the UAE’s second-ranked ENBD surpassed predictions by 18%, according to Bloomberg data.

Bloomberg/Dubai


The biggest banks in the UAE are beating analysts’ earnings estimates as a lending revival in the Arab world’s second-biggest economy complements rising fee income.
First-quarter profit at National Bank of Abu Dhabi, the UAE’s biggest lender, and second-ranked Emirates NBD surpassed predictions by 18%, according to data compiled by Bloomberg. Lending growth of 10% at NBAD was almost eight times last year’s figure, while it accelerated to 9% at ENBD, the figures show. Average credit growth for lenders in the nation was 7.1% in 2013.
The UAE’s accelerating growth, fuelled by rebounding property prices and increased tourism, is sending sovereign borrowing costs and interbank lending rates to near-record lows. Spending in preparation for the Expo 2020 in Dubai, which includes expanding an airport and extending subway lines, could reach $8bn and will drive demand for loans.
“We expect lending growth of something between 9% and 12% this year,” Naveed Ahmed, an analyst at Kuwait’s Global Investment House, said by phone April 27. “Going forward we will likely see a spike in lending, especially with Expo 2020 drawing closer and due to immense infrastructure spending.”
The yield on Dubai’s $750mn bonds due October 2020 tumbled 106 basis points this year to 3.4% on Wednesday, near the lowest since they were sold in 2010, while that of Abu Dhabi’s $1.5bn bonds due April 2019 fell 34 basis points to 2.1%, the lowest since June.
The three-month Emirates Interbank Offered Rate, which is used by banks to price some loans, dropped seven basis points in 2014 to 0.74% on Wednesday, the lowest since at least 2006, when Bloomberg began collecting the data.
“Low interest rates and recovering credit appetite is spurring retail lending, like on credit cards, personal loans and home loans,” Shabbir Malik, an analyst EFG-Hermes Holding SAE, said by phone from Dubai on Tuesday. “Banks have also focused on fee income, which has been strong, to compensate for low corporate loan yields.”
Income from fees and commissions at NBAD jumped 29% from a year earlier, first-quarter results show. It rose by 34% at ENBD, and by 25% at the third-biggest bank, First Gulf Bank.
An improvement in most banks’ net-interest margins, a measure of profitability, was expected as funding costs continue to decline, according to Chiradeep Ghosh, a Bahrain-based senior analyst at Securities & Investment Co.
“It will be challenging for banks to maintain these margins as there is ample liquidity in the system,” he said by phone April 28. “All banks would be competing among each other to cut the price on loans.”
ENBD reported a 25% jump in profit to 1.04bn dirhams ($283mn), according to data compiled by Bloomberg. The average estimate of five analysts surveyed by Bloomberg was for net income of 881.2mn dirhams. NBAD earned 1.4bn dirhams, beating the 1.19bn-dirham mean estimate of five analysts.
Growth in the UAE accelerated to 4.8% in 2013, the highest in seven years, according to data compiled by Bloomberg. Dubai-owned port operator DP World is investing $3.7bn to expand capacity, while Abu Dhabi is spending $4.58bn to build the world’s biggest aluminium smelter to help diversify its oil-dominated economy.
“There may be more projects rolled out in the second half of the year, so we might see greater lending opportunities,” said Ghosh.