Islamic banks’ profits down 17% in H1

Islamic banks in the UAE recorded a decline of around 17 per cent in its net earnings in the first half of 2010 despite a sharp rise in the profits of the Abu Dhabi Islamic Bank (ADIB), bank figures showed on Thursday.

From around Dh1.51 billion in the first half of 2009, the combined net income of the country’s Islamic banks dipped to nearly Dh1.24 billion in the first half of 2010, showed the figures released by Mubasher information centre.

The earnings in the first half of this year accounted for nearly 13.4 per cent of the total net profits of the UAE’s banking sector, the report said.

It gave no breakdown but showed Adib’s profits surged by nearly 28.8 per cent to Dh594.9 million in the first half of this year.

The report showed the total net earnings of the UAE’s 24 banks and 28 foreign units slumped by about 12.6 per cent to Dh9.04 billion in the first half of 2010 from around Db9.22 billion in the first half of 2009.
Analysts said the decline in the profitability of the UAE banking sector, the largest in the Arab world, was mainly a result of high provisions and slackening credit.

Individually, several national banks reported growth in their net income in the first half of 2010, including the government-controlled National Bank of Abu Dhabi (NBAD) and First Gulf Bank (FGB). The UAE’s largest bank, Emirates NBD, reported a 51 per cent fall in profits because of its exposure to Dubai World. From Dh2.111 billion, its profits plunged to Dh1.513 billion.

The Abu Dhabi Commercial Bank (ADCB), also controlled by the government, was the one odd out as it recorded losses of around Dh306 million against a net profit of nearly Dh657 million in the first half of 2009. The Bank attributed the loss to its exposure to the Dubai World by around $1.8 billion.

Central Bank figures showed UAE banks are pushing ahead with a post-crisis provisioning drive because of their exposure to Dubai World, the domestic real estate sector and two Saudi financially troubled family businesses.
In June and July alone, the country’s 51 banks chopped nearly Dh2.1 billion off their coffers for non-performing loans, bringing their total NPL provisions to nearly Dh37.3 billion at the end of the first half.

Analysts believe the banks need to take more NPL provisions as they appear to be heavily exposed to the real estate and construction sector because of a sharp downturn in the aftermath of the 2008 global fiscal crisis.

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

The Washington-based Institute of International Finance (IIF) said overexposure to real estate and Saudi businesses has eroded the Gulf banks’ asset quality.

“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.”

Its figures showed the NPL ratio of UAE banks rose from 2.5 per cent at the end of 2008 to 4.3 per cent at the end of2009, and is expected to grow to about nine per cent at the end of this year. The report said the increase is partly due to the central bank’s tightening of regulatory standards via a reduction of the loan classification period from 180 days to 90 days.

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