UAE BANKS DO GREAT IN FIRST QUARTER
Market cap surges 78% in quarter, buoyed by positive economic indicators
dubai — The UAE banking sector performed well during the first quarter of 2014 as total market capitalisation surged 78 per cent following an improving economy, recovering real estate market and a strong rebound in tourism and retail sectors, a report has revealed.
In terms of size, the top 18 listed banks in the UAE have a combined market capitalisation of Dh367 billion as at the end of March 2014, representing roughly 45 per cent of the UAE’s total market cap, according to a latest report from Al Masah Capital.
The investment management firm’s report ranked National Bank of Abu Dhabi, or NBAD, First Gulf Bank and Emirates NBD as the top three lenders in terms of market capitalisation, which stood firm at Dh64.4 billion, Dh63.6 billion and Dh45.9 billion, respectively. The smallest bank by market cap is Ajman Bank at Dh3.3 billion.
“The fundamental outlook for UAE banks is expected to continue on its trend of improvement for the current year, with loan books growing, profitability improving and troubled assets declining for the sector as a who le ,” Shailesh Dash, chief executive officer of Al Masah Cap
ital, told Khaleej Times.
According to the report, market cap rose 19 per cent in the January - to - March 2014 quarter compared to the October-to-December 2013 period. However, the Dubai Financial Market’s main index and Abu Dhabi stock market’s benchmark measure had returns of 32 per cent and 14 per cent, respectively, for the same period.
Abu Dhabi Islamic Bank, United Arab Bank, or UAB, and Commercial Bank of Dubai, which market caps rose 56 per cent, 43 per cent and 38 per cent, respectively, were the top banks during the first quarter compared to the last quarter of 2013. National Bank of Fujairah’s market cap fell by 10 per cent during the period.
The report further said 2013 customer deposits for all banks recorded year-on-year growth of 13 per cent at Dh1.129 trillion. UAB and Ajman Bank increased their deposits at the fastest pace at 49 per cent and 26 per cent, respectively, while National Bank of Umm Al Qaiwain increased its deposits by two per cent.
Dash said although fundamentals for the banking industry are expected to continue their gradual improvement, the share price performance is unlikely to see large gains similar to past year.
“Share gains in the banking sector last year was due to a large extent from the low valuation multi- ples prevalent at the time. In 2012, the market cap weighted average price-to-book ratio for the sector was at 0.96 and today it has almost double to 1.84. Therefore, most of the multiples expansion is behind us and share performance will be driven mainly by income growth and profitability improvements going forward,” Dash explained.
Arqaam Capital, which sees further upside for the UAE banking sector, said an uptick in commercial momentum, strong F&C income generation, robust property investment income and lower cost of risk will drive the positive momentum for the industry.
“We still remain overweight on UAE banks and continue to see plenty of alpha in selected names. Valuations still do not price in a new era of growth nor expected falls in credit losses. We increased our revenue growth forecasts and lowered credit loss expectations and lowered ERP by 50-100 basis points,” the investment bank said it its latest report.
Gains in net income
Al Masah Capital’s report recorded 18 per cent year-on-year gains in net income of all banks in 2013 and said it reached at Dh27.7 billion. Dubai Islamic Bank and Mashreq had the best bottom line growth at 40 per cent and 38 per cent, respectively. Ajman Bank decreased the most with net profit declining by 68 per cent to Dh11 million.
It further said average net interest margin for all banks came in at 3.86 per cent as of the end of 2013 versus 2.07 per cent for 2012, an 87 per cent increase in margins. National Bank of Ras Al Khaimah had the highest margin at 10.2 per cent while Abu Dhabi Islamic Bank came in second at 7.3 per cent and NBAD was the lowest at 2.5 per cent.
On total loan growth last year, the report said it rose 11 per cent at Dh1.067 trillion. Sharjah Islamic Bank and UAB increased their loan books at the fastest rate of growth in 2013, expanding by 42 per cent and 41 per cent, respectively, while Dubai Islamic Bank had the lowest increase at just two per cent.
The report further noted only 0.95 per cent increase in non-performing assets last year.
“Non-performing assets [NPA] amounted to Dh71 billion in 2013. NPA as a percentage of total loans came in at 6.7 per cent for 2013 falling from the 2012 figure of 7.3 per cent,” the report said.
Commercial Bank International and Emirates NBD have the highest ratios of NPA to total loans at 23 per cent and 14 per cent, respectively, while Ajman Bank and UAB showed the lowest ratios at 1.2 per cent and 1.6 per cent, respectively.
The fundamental outlook for UAE banks is expected to continue on its trend of improvement for the current year
Shailesh Dash