Abu Dhabi Islamic Bank (ADIB) warned yesterday it was restricting the amount of new credit it was extending due to an increase in defaults across its business lines.
The message from the emirate’s largest Islamic bank is perhaps the most stark yet of the impact on the banking sector in the United Arab Emirates from reduced government spending as a result of lower oil prices.
This came after the bank posted a 1% rise in second-quarter net profit to Dh507.5mn ($138.2mn), a result which beat the forecasts of analysts at EFG Hermes and Arqaam Capital.
It came on the same day another Abu Dhabi lender, Union National Bank, reported a fourth successive quarter of lower earnings due to the difficult market conditions.
In a statement announcing ADIB’s results, chief executive Tirad al-Mahmoud said it remained concerned about the levels of economic activity and growth in the region and in the world’s major markets.
“Our concern is further exacerbated by the rising levels of defaults in an increasing number of client segments and industry sectors in the markets in which we operate,” said Mahmoud after the bank set aside Dh234mn as provisions for bad loans in the second quarter, up 33.6% year on year.
“As a result, we continue to forecast modest new customer financing growth and, where credit extension is targeted, will continue our practice of only doing so in such a manner that the risk related returns are commensurate with our long-term regulatory capital needs and return of shareholders equity goals.”
Net customer financing stood at Dh79.7bn on June 30, up 6.9% year on year but only 1.6% higher since the end of 2015.
Income from traditional banking practices was Dh982.3mn, up 6.9% on the same three months of 2015.
The bank’s earnings received greater support from its income from investments and foreign exchange, which grew 28.2% to Dh204.3mn and 16.1% to Dh43.7mn respectively.
As part of its cost-cutting measures, the bank reduced headcount in the UAE by 110 to 2,349 in the second quarter of 2016, it said.




Union National Bank
Union National Bank, which is 50% owned by the Abu Dhabi government, beat analyst estimates yesterday with a 17.3% drop in second-quarter net profit due to challenging market conditions.
It was the fourth successive quarter the lender has reported reduced earnings as it continues to be hit by reduced government spending in the United Arab Emirates and tight liquidity conditions in the wake of lower oil prices.
The fifth-largest lender in the emirate by assets reported a net profit attributable to equity holders of Dh469.5mn ($127.9mn) in the three months to June 30, down from Dh568.0mn in the same period a year earlier.
That was ahead of the average forecast of Dh420mn in a Reuters poll of four analysts.
“The tighter liquidity environment has led to a higher cost of deposits with the net interest income being adversely impacted,” the bank said in a statement.
It said income from traditional banking practices fell 17% year-on-year to Dh636mn . Its net interest margin — the difference in how much the bank pays on deposits and how much it earns on lending — fell 52 basis points to 2.64% in the first half of the year.
Total deposits on June 30 were little changed from a year earlier at Dh73.3bn, although they were down 2% from the end of 2015.
Loans and advances stood at Dh70.1bn on June 30, up 4% year on year.
A 10% increase in non-interest income to Dh232mn, as well as an 11% decrease in provisions for bad loans, helped alleviate some of the impact.