Abu Dhabi Commercial Bank is the latest UAE lender to report another set of first quarter earnings that have put paid to concerns that a sharp decline in oil prices would dent the profitability of lenders. It joins Dubai Islamic Bank, Mashreq and Union National Bank in posting double-digit first quarter income growth that has exceeded the expectations of analysts.
The government-controlled lender said net profit attributable to equity shareholders jumped 31 per cent to Dh1.24 billion from Dh953.2 million in the same period the previous year, boosted by record interest income, or the money the bank receives from giving out loans.
Net interest income rose 19 per cent to Dh1.64bn in the first three months of the year compared to the same time frame last year, while the profit that the bank received from other sources, net non-interest income, gained 6 per cent to Dh551m in the first quarter from the corresponding quarter in 2014.
“Our strong results reflect the strength of our franchise and ongoing customer demand for our products and services in a challenging environment, while we continue to proactively manage our cost base,” said Ala’a Eraiqat, the bank’s chief executive.
Those challenges have mainly come in the form of an increasingly overcrowded banking sector and record low interest rates that have forced banks to offer their clients cheaper and cheaper cash.
It has also come in the shape of a more than 50 per cent drop in the price of oil since the summer, raising worries that government companies sensitive to the fluctuation in hydrocarbon prices will not be able to deposit as much cash into bank coffers as they have in recent years, when oil prices were buoyant.
The price of crude dropped about 10 per cent in the first quarter.
The UAE is the world’s eighth- largest producer of crude oil and the federal government relies on sales of energy products to fund more than 60 per cent of its budget.
Bankers including Mr Eraiqat have been betting that an increasingly diversified economy will help the country weather the storm. Still, analysts say it may be too early to gauge the full impact of lower oil prices on the profitability of banks this year.
“Even if there were challenges created by lower oil prices, they were not going to manifest themselves so early on,” said Shabbir Malik, a Dubai-based analyst at the Egyptian investment bank EFG Hermes. “If there will be issues, if there will be challenges it will take some time to materialise. It may not occur in the first half of the year.”
Follow The National’s Business section on Twitter