United Arab Bank plunged into a third-quarter loss after a sharp rise in commercial loan defaults as the first signs of stress begin to emerge in the sector.
The Sharjah-based bank lost Dh272.6 million in the third quarter compared to a profit of Dh169.2m in the same period last year.
The bank said it set aside Dh466m during the third quarter to cover bad debt, or provisions, “following a significant increase in loan defaults in UAB’s higher-risk commercial loan portfolio”.
A spokeswoman for the bank said it could not elaborate further.
“We will be deleveraging from some of our higher-risk assets over the course of the final quarter,” said Paul Trowbridge, UAB’s chief executive. “We will continue to improve liquidity and continue to enhance our risk management.”
UAB’s net income advanced 9.6 per cent last year to Dh605m from Dh552m in 2013 as the bank benefited from record low interest rates that encouraged individuals and companies to take out loans to fund everything from cars to homes as well as corporate expansion.
But many economists, including those at HSBC and Standard Chartered, have lowered their 2015 forecasts for Arabian Gulf countries. StanChart expects the UAE economy to grow 3.8 per cent this year, slowing from 4.5 per cent last year. And that may be reflected in bank earnings this year, analysts said.
“My expectation is that we will see credit quality deterioration in the next three to six months, given that liquidity is tightening, the credit bureau is in place and there are signs of an economic slowdown,” said Shabbir Malik, a Dubai-based analyst at the Egyptian investment bank EFG-Hermes. “We are already seeing provisioning pressure building up for some banks.”
EFG-Hermes expects the earnings growth of the nine UAE lenders it tracks to drop 10 per cent year-on-year to the end of the third quarter. UAB is not one of the banks it tracks.
Behind the lower expectation of economic growth is the fall in demand for hydrocarbons. Crude oil has lost about 50 per cent since prices peaked last June amid an increase of supply from North American producers and waning demand from big emerging markets such as China.
The UAE is the eighth-largest producer of crude oil in the world and the federal government relies on crude oil exports to fund more than 60 per cent of its budget.
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