Abu Dhabi Commercial Bank said second-quarter earnings rose 21 per cent, bolstered by profit from fees and commissions as banks addressed low loan margins by beefing up businesses such as asset management and trade finance.
ADCB, the first major UAE bank to post second-quarter results, beat analysts’ expectations even as the price of oil declined.
Net income grew to Dh1.28 billion in the second quarter from Dh1.06bn in the same period last year.
Non-interest income, comprising mostly of fees and commissions, climbed 8 per cent to Dh498 million from Dh462m last year.
Net interest income and Islamic financing income increased 9 per cent to Dh1.54bn from Dh1.41bn last year.
“Our strategic framework creates a clear direction, and combined with our solid foundation, it provides agility in a rapidly changing world,” said Eissa Mohamed Al Suwaidi, ADCB’s chairman.
“Challenges have increased with the lower oil price, however the UAE’s economic outlook remains positive, supported by its diversified nature.”
The price of crude oil, to which the fortunes of the UAE economy is tied, has dipped 0.9 per cent this year. Last year, the price of crude tumbled 48 per cent. As a result, many economists have lowered their growth forecasts for Arabian Gulf countries this year.
The IMF cut its estimate of the UAE’s GDP growth this year to 3.2 per cent. The country’s economy grew more than 4 per cent last year.
Most of the UAE’s biggest banks have transformed their business models in the past couple of years to extract more income from services that levy fees – such as asset management, brokerage and trade finance – rather than relying exclusively on interest from loans.
Lenders have also largely cleaned up bad debts dating back to the global financial crisis in 2008, making them more resilient to financial shocks.
UAE banks have been profitable in the first quarter of this year as concerns that the collapse of oil prices would hurt profitability proved unfounded, as the country’s economy has proved to be resilient.
Although analysts say that it is too early to say what is the longer-term impact of lower oil prices on banks’ ability of banks to make money – especially if oil prices remain subdued for a long time – analysts say that banks have so far been able to weather oil’s downturn by generating more money from fees.
As part of that strategy, lenders are generating more recurrent income from advisory services, trade finance, capital markets and insurance and brokerage operations.