Abu Dhabi Commercial Bank beat analysts’ forecasts despite posting a 12.3% drop in second-quarter net profit yesterday, weighed down by the need to set aside more cash for bad debts.
It is the third Abu Dhabi bank to report weak earnings, reflecting the struggles of the emirate’s banking sector as the impact of lower oil prices and reduced government spending feeds through into the wider economy.
Abu Dhabi’s third-largest bank by assets made a net profit attributable to shareholders of Dh1.13bn ($307.7mn) in the three months to June 30, compared to Dh1.28bn in the same period a year ago.
Four analysts polled by Reuters had forecast a net profit for the quarter of Dh1.07bn.
The bank’s earnings were dragged down by a steep rise in impairment charges, with Dh350.9mn set aside to cover bad debts in the second quarter compared to Dh83.9mn in the same three months last year. Net interest income from traditional banking operations also fell 1% on the same three months of last year to Dh1.53bn.
These factors offset a 24% increase in non-interest income, such as earnings from fees, to Dh616.7mn.
The bank noted, in relation to the first half of the year, that fees in its retail banking business had grown strongly on the back of higher loan volumes and credit card spends.
“We remain prudent in our growth strategy and continue to focus on maintaining a diversified funding base while liquidity remains a top priority,” chief executive Ala’a Eraiqat said in the statement.
Lower oil prices are forcing UAE lenders to adjust to tighter liquidity as the government uses revenues previously placed as deposits with banks to help plug the budget deficit.
The bank’s average net interest margin in the first half of the year fell to 3.11% from 3.47% in the corresponding period of 2015, reflecting the lower amount the bank earned on its lending versus how much it paid out to initially secure the funds.
Both the total amount of loans and deposits the bank held on June 30 were up 13% year-on-year to Dh154.9bn and Dh149.1bn, although loans had been growing at a faster rate than deposits in the first half of 2016 at 6% and 4% respectively.


Al Rajhi Bank
Al Rajhi Bank, Saudi Arabia’s second-largest lender by assets, reported a 5.7% rise in its second-quarter net profit yesterday, broadly in line with analyst forecasts.
The bank made 2.05bn riyals ($546.7mn) in the three months to June 30, up from 1.94bn riyals in the same period a year earlier, it said in a bourse statement.
Five analysts surveyed by Reuters had on average forecast the bank’s quarterly profit would be 2.07bn riyals.
The bank attributed the profit gain to a 10.3% year-on-year increase in net operating income to 3.9bn riyals, which in turn was boosted by more income from financing and fee income from banking services.
This helped to offset a 16% jump in total operating expenses, which rose because of higher salaries expenses and impairment charges.
Saudi companies issue brief earnings statements early in the reporting period before publishing more detailed results later.
Saudi banks are facing a tougher operating environment as persistently low oil prices and a pullback in state spending gradually weigh on the economy.
In previous years, Saudi banks were also able to build up hefty deposits as revenues garnered by the government from high oil prices were parked with lenders.
Instead, the government is using this revenue to help plug the budget deficit, straining liquidity in the banking system.
This was reflected in the 0.57% increase in deposits year on year, to stand at 270.96bn riyals as of June 30.
This compares with a 6.6% advance in total loans over the same timeframe to 224.5bn riyals.


Samba Financial
Samba Financial Group, Saudi Arabia’s third-largest bank by assets, reported a 1.4% drop in second-quarter net profit yesterday, in line with analysts’ forecasts.
The bank made a profit of 1.31bn riyals ($349.3mn) in the three months to June 30, down from 1.33bn riyals in the same period a year earlier, it said in a bourse statement.
Six analysts polled by Reuters had on average forecast the bank would make a quarterly net profit of 1.30bn riyals.
The bank attributed its drop in net profit to a 6.4% rise in total operating expenses as a result of an increase in salaries and related expenses and higher credit provisions. This offset the benefits from a 15.2% rise in profits from special commissions, which increased to 1.34bn riyals.
Operating income for the quarter advanced 1.1% on the corresponding period of 2015 to 1.97bn riyals.
Saudi companies issue brief earnings statements early in the reporting period before publishing more detailed results later.
The kingdom’s banks are finding themselves in a trickier operating environment than they’ve become accustomed to in recent years as weaker oil prices pressure liquidity and slow economic growth to its lowest pace in three years.
Loans and advances at the end of June stood at 130.8bn riyals, falling 0.1% on the same point of 2015, while deposits rose 0.7% to 172.1bn riyals over the same period.
The bank said on June 30 it proposed a cash dividend of 0.45 riyals per share for the opening half of 2016. It is the same amount as it paid for the first six months of last year, according to Thomson Reuters data.


Emirates NBD
Dubai’s largest lender, Emirates NBD (ENBD), reported a 16% rise in second-quarter net profit yesterday, broadly in line with analysts’ forecasts, aided by a cut in the amount of cash it sets aside to cover bad debt.
The bank, seen as a gauge of the emirate’s economy, warned that Dubai’s economic growth is expected to slow in 2016 as lower oil prices contribute to tighter fiscal policy.
ENBD recorded its 16th consecutive quarter of rising earnings at a time when profitability at other lenders in the United Arab Emirates is challenged by a weaker economy.
ENBD made a net profit of Dh1.91bn ($520mn) in the three months to June 30, it said in a statement.
This was well ahead of the Dh1.65bn it earned in the corresponding period of 2015, as well as the 1.80bn dirham consensus estimate from four analysts. Driving profit growth was a 30% drop in provisions to Dh626mn, as the cost of risk continued to improve and it recovered more cash from loans previously classed as bad, it said.
Reflecting the bank’s improved performance, ENBD’s non-performing loans ratio eased to 6.6%.
The rate has gradually improved from a peak of 14.3% in 2012 following the real estate crash and a debt crisis at Dubai state-owned investment companies.
Net interest income from traditional banking operations rose 2% to Dh2.54bn, aided by higher loan growth and a year-on-year increase in the Emirates Interbank Offered Rate, against which local currency loans are priced.
This growth helped offset a 6% increase in operating expenses, despite the bank laying off around 300 people earlier this year at Emirates Islamic Bank and another subsidiary.