Improving conditions to fuel NBF profits
EFFECTIVE LIQUIDITY MANAGEMENT AND PRICING BOLSTER MARGINS AND RETURN ON CAPITAL
UAE lender expects loan growth to maintain its current momentum and improve further in the second half of the year |
National Bank of Fujairah (NBF) reported strong growth in profit in the first half of 2018, supported by sustained gains in its core banking business, and is expected to maintain the growth momentum in the second half of the year, Vince Cook, CEO of the bank told Gulf News in an interview.
NBF reported a net profit of Dh310.2 million for the first half of 2018, up 10.4 per cent compared to the same period last year. Net profit for the second quarter stood at Dh164.8 million, up 13.4 per cent on first-quarter figures and reflecting a high level of resilience in its core business.
Despite the overall sluggish loan growth environment, the bank reported an 8.9 per cent growth in loans and advances year-on-year in the first half.
“We are very encouraged by the overall loan growth and profitability in the first half of this year. We have been able to find pockets of growth,” said Cook.
The bank has witnessed growth coming from different business segments including some areas that had been going through stress in the past.
“We believe that we have been through the worst of what happened in... business banking, particularly in the small and medium enterprises [SME] sector,” Cook said. “We are also seeing growth coming from both services and manufacturing sectors.”
Balance sheet management
NBF’s operating income for the first half of this year came in at Dh768.7 million, having registered 14.6 per cent growth year-on-year. This was achieved by robust business growth, an enhanced balance sheet management in a rising interest rate environment, efficient management of liquidity and effective pricing strategies that helped in improving margins and return on capital.
The bank’s return on average assets improved from 1.6 per cent during the same period last year to 1.7 per cent, while return on average equity rose to 12.7 per cent, up from 12.1 per cent in the corresponding period in ■ 2017.The bank made gains from repricing assets and investments for a shorter duration at a floating rate. On the liabilities side, a focus on transactional accounts and current and savings accounts (CASA) balances helped it to improve margins. Currently the bank’s CASA mix exceeds 30 per cent — compared to less than 20 per cent a few years ago.
Effective deployment of surplus liquidity and improving returns on liquid assets, as well as deposit mobilisation for longer tenors at reasonable pricing and the reduction of dependence on bilateral and term borrowing have reduced the cost of funds, helping the bank to improve its interest margins from 2.5 per cent during the first half of last year to 2.8 per cent in the first half this year.
Net interest income and net income from Islamic financing and investment activities for the six-month period grew by 21.7 per cent over the corresponding period in 2017 to Dh525.1 million.
Lending growth in the UAE’s banking sector in the recent months has been largely driven by corporate and the government-related entities (GREs) sector, with nearly flattish growth in the retail segment.
Unique business model
While this overall trend is reflected in the books of NBF, Cook said the bank’s retail business, supported by its unique business model, is maintaining growth above overall market growth trends.
“Our retail business is not based on the traditional model. We use our retail platform largely to service our own market in Fujairah and it is closely aligned to the needs of some of our corporate customers. Thus, we don’t have the same pressures in volumes as many of our peers. In our model we are still seeing growth in retail business,” said Cook.
NBF expects loan growth to maintain current momentum and improve further in the second half of the year, driven by improving business conditions and various stimulus packages announced by the government.
“Weexpecttoseealotofgrowth to come in the market driven by recent efforts by the government to stimulate the economy. There are a number of initiatives to support early stage [businesses] and SMEs. All of these, we expect, will benefit our business model. We expect to see the type of growth we experienced in the first half continuing into the second half of the year, with strong single-digit growth,” he said.
The bank sees visible improvements in the business conditions in the UAE.
“Challenges faced by the businesses starting in early 2015 led to some amount of holding back of investments. Now a number of genuine investors are making investment decisions. With business confidence picking up, banks are happy to lend,” Cook said.
We believe that we have been through the worst of what happened in... business banking, particularly in the small and medium enterprises [SME] sector.” Vince Cook (above)| National Bank of Fujairah CEO