Banks sharply boost provisions in Dec

UAE banks appear to be stepping up a drive to build up bad debt provisions four years after the 2008 global fiscal distress, allocating nearly Dh2.1 billion in December, the highest monthly average in 2011.

From around Dh53.2 billion at the end of November, total provisions by the country’s 51 banks swelled to Dh55.3 billion at the end of December, showed a report issued by the Central Bank this week.

The increase boosted total provisions allocated by banks through 2011 to nearly Dh11 billion, slightly lower than the Dh11.7 billion set by banks in 2010 and the record high Dh12.9 billion during 2009.

The UAE’s 23 national banks and 28 foreign units began building up non-performing loans (NPL) provisions in the aftermath of the 2008 crisis and the debt default problem in the region a year later.

Most banks were exposed to both crises following a sharp rise in credit through the boom years of 2006-2008.

High provisions were at the expense of the banks’ net profits, which were also adversely affected by their risk-averse policy that saw domestic credit growth tumble to below five per cent from more than 30 per cent before the crisis.

Balance sheets for 2011 showed banks have fully recovered, with national units reporting one of their best results. Net profits stood at around Dh21.2 billion, nearly 50 per cent above the 2010 income.

Banks began recovering in 2010 when they recorded a 6.2 per cent growth in net profits following a slowdown caused by the crisis.

According to a key Western financial institution, UAE banks have emerged more vulnerable to real estate downturns than those in other Gulf oil producers due to their massive lending to that sector.

The Washington-based Institute of International Finance (IIF) said overexposure to real estate and faltering Saudi family conglomerates has eroded banks’ asset quality in the UAE and other Gulf nations.

“In the UAE, the banking system is significantly exposed to the construction sector and the highly speculative real estate sector. Several banks in the UAE are exposed to high levels of credit risk in connection with the family-affiliated conglomerates in Saudi Arabia and government-related entities in Dubai,” it said.

The central bank report showed UAE banks’ total assets gained nearly Dh57 billion through 2011 to reach Dh1,662 billion and maintain their position as having the largest asset base in the Arab world. Deposits with the banks grew by around Dh20 billion to Dh1,069 billion and loans by Dh40 billion to Dh1,071 billion.

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