UAE banks – Q2 results (PDF)

Summary and recommendation
We have analysed the Q2-2009 results for six of the seven UAE banks under our coverage.
• Emirates NBD (ENBD) (A- neg/A1/AA-)(SCB credit outlook: Negative)
• National Bank of Abu Dhabi (NBAD) (A+/Aa3/AA-) (SCB credit outlook: Stable)
• Abu Dhabi Commercial (ADCB) (A/Aa3 neg/N.R) (SCB credit outlook: Negative)
• First Gulf Bank (FGB) (N.R./A2 neg/ A+) (SCB credit outlook: Negative)
• Mashreqbank (MQB) (A- neg/A2/A+) (SCB credit outlook: Negative)
• Union National Bank (UNB) (N.R./A1/A+) (SCB credit outlook: Negative)

Our main findings are that loan growth, and to a lesser extent deposit growth, continue to be relatively muted compared with early 2008; asset quality deterioration appears to be gathering pace; profitability is being negatively impacted by rising loan-loss provisions; loan-to-deposits ratios remain stubbornly high; and capital adequacy remains strong.

With the exception of the high loan-to-deposits ratio, the fundamentals of the banks appear to be sound. Although funding conditions have not returned to normal, they have improved considerably over the last six months. Our main concern relates to asset quality; over the next six to 12 months we expect it to deteriorate
and this will have knock-on effect on profits. Exposure to Saad and Gosaibi is likely to add to the asset-quality pressures of some of the banks. If current trends continue, it is possible that some of the banks will report Q4 losses.