Leading the way: A look at the four main players in a busy industry

A major part of the banking sector within the UAE, Dubai is also a key player in the wider MENA region. In the first quarter of 2012, Dubai-based Emirates NBD (ENBD) was not only the largest bank by assets in the UAE, but number three in the GCC, after Qatar National Bank and Saudi Arabia’s National Commercial Bank. ENBD shares the Dubai banking world with many other local banks though – both Islamic and conventional. In addition, there are many international lenders, both in Dubai International Finance Centre and operating within the UAE. Adding local and global banks together, there are some 51 financial institutions in the UAE, 23 local and 28 foreign. The top three local banks in the emirate after ENBD, by descending asset size, are Dubai Islamic Bank (DIB), Mashreq Bank and Commercial Bank of Dubai (CBD).

MERGING TWO GIANTS: ENBD is the result of a 2007 merger between Emirates Bank and National Bank of Dubai, and it has as subsidiaries Emirates Islamic Bank and, since an October 2011 takeover, Dubai Bank (DB) – another Islamic lender. ENBD has the largest branch network of any bank in the UAE. Beyond its 112 branches in Dubai, it also has 27 in Abu Dhabi, 15 in Sharjah and 12 in the other emirates. Overseas, the bank has branches in the UK, Channel Islands, Saudi Arabia, Qatar and Singapore, with representative offices in India, Iran and China. ENBD’s long-term credit ratings in the first quarter of 2012 were A3 with a negative outlook from Moody’s, A+ with a stable outlook from Fitch and A+ with a negative outlook from Capital Intelligence. It is listed on the Dubai Financial Market, and had a price-to-earnings ratio of 7.0 in April 2012.

The bank’s 2012 third-quarter report shows a total of Dh305.4bn ($83.1bn) in assets – just above its main UAE rival, the National Bank of Abu Dhabi (NBAD), which had Dh305bn ($83bn). ENBD recorded Dh1.9bn (517.2m) net profit for the nine months ended September 30, 2012, up 272% compared with Dh500m ($136.1m) in the same period of 2011 after excluding the Dh1.8bn ($490m) non-recurring gain on subsidiaries. Its fiscal third-quarter net profit rose 267% on year to Dh640m ($174.2m).

Net profit for 2011 was Dh2.53bn ($689m), up on Dh2.3bn ($626m) in 2010, although still below the pre-crisis peaks – in 2008 net profits were Dh3.7bn ($1.1bn). Return on equity similarly rose slightly, from 10.2% in 2010 to 10.3% in 2011, where it remained into the first quarter of 2012.

Assets and loans have also been showing a gradual upward trend in recent times. Third-quarter 2012 figures show that loans increased to Dh212.5bn ($57.8bn), up 5% from Dh203.1bn ($55.3bn) at the end of 2011. Meanwhile, deposits also grew, reaching Dh214.2bn ($58.3bn), up 11% from Dh193.3bn ($52.6bn) at the previous year-end.

Third-quarter results for 2012 showed non-interest income up by 21% to Dh790m ($215m), due to higher investment securities income and a 2% decline in core fee income across most areas. Third-quarter interest income, meanwhile, declined 11% to Dh1.73bn ($470.9m) as the net interest margin narrowed to 2.35% from 2.96% a year earlier.

Third-quarter 2012 results also showed that ENBD’s capital adequacy ratio (CAR) fell 0.6% relative to the end of 2011, yet was still at a healthy 19.9%. The Tier 1 ratio was 13.2% at the end of the third quarter of 2012 up from 12.5% at the end of the first quarter of 2012. The CARs of Dubai’s banks are generally high compared to European or American peers and Basel III requirements.

THE PAYOFF: The bank’s profit story in 2011 was one of major gains – such as via the sale of 49% of the card payments business Network International for Dh1.8bn ($490m) – offset against increased provisioning, the bugbear of all Dubai’s banks. Impairment allowances went up some 56% between 2010 and 2011, from Dh3.19bn ($868m) to Dh4.98bn ($1.36bn). Impairment allowances stood at Dh1.01bn ($274.9m) for the third quarter 2012, down 36% from Dh1.57bn ($427.4m), which the bank recorded in the same three months of 2011. Provisioning is currently tied up with efforts to de-risk the balance sheet, while a period of corporate credit quality issues continues, as restructuring advances in a number of major Dubai entities. In terms of impaired loans, the ratio increased from 13.8% in the fourth quarter of 2011 to 14.4% in the third quarter of 2012.

The absorption of Dubai Bank (DB) seems to have had little major effect on ENBD’s balance sheet, as DB was in any case relatively small, accounting for around 1% of the UAE’s total assets. The UAE authorities issued guarantees on the takeover, and a fair value gain. ENBD has confirmed its next move to merge DB and Emirates Islamic Bank together as a single Islamic entity under ENBD’s auspices in the year ahead. In terms of future strategy, the bank seems likely to continue cutting costs, staff losses have been a recent feature of this, and managing its margins in an environment in which the global signs are uncertain, while Dubai itself sees slower growth than it was once used to. A conservative outlook will likely go hand-in-hand with building customer services and quality, while the legacy issue of provisioning continues to have an impact, impairments being gradually worked out of the system.

ISLAMIC BANKING PIONEER: Second in terms of assets among the emirate’s banks is DIB, which was also fifth-largest in assets in the UAE in the first quarter of 2012, at Dh92.5bn ($25.2bn). DIB has an historical claim to fame: founded in 1975, it is the oldest fully fledged Islamic bank in the UAE, as well as the largest offering a variety of sharia-compliant financial products. The bank’s total assets were up as of September 30, 2012, standing at Dh93.7bn ($25.5bn), compared to Dh90.6bn ($24.7bn) at the end of 2011, an increase of 3.5%. Meanwhile, customer deposits increased by 3.3% to Dh66.9bn ($18.2bn) as of September 30, 2012, with a financing-to-deposit ratio of around 82%. The bank’s figures also showed a robust CAR of 18.4% and a Tier 1 CAR of 14.3%.

The third quarter saw DIB set aside Dh309m ($84.1m) for impairments, an increase of 43% from Dh217m ($59.1m) in the same quarter of 2011. For the first nine months of 2012, DIB made provisions of Dh849m ($231.1m), compared to Dh718m ($195.4m) over the same period of 2011. For the first nine months of 2012, the bank posted a net profit of Dh854m ($232.5m), compared to Dh850m ($231.4m) for the corresponding period of 2011. For the third quarter of 2012, the bank reported a net profit of Dh298.5m ($81.3m), compared with a profit of Dh298m ($81.1m) in the same period previous year.

MOVING FORWARD: The next-largest bank in Dubai by assets is Mashreq, with Dh76.4bn ($20.8bn) at the end of third quarter 2012. This compares to Dh79.2bn ($21.6bn) at the end of 2011, a decline of 3.6%. Mashreq started out as Bank of Oman in 1967, making it the oldest bank in the UAE, before changing to its current name in 1993.

The bank’s loans and advances were up to Dh40.5bn ($11bn) in September 2012, a 7.5% increase from Dh37.7bn ($10.3bn) at the end of 2011, while customer deposits shrank 4.1% to Dh43.5bn ($11.8bn) as the bank shed high-cost deposits. Mashreq’s quarter-three results showed a 28.3% increase in net profit for the first nine months of 2012 reaching Dh970m ($264m) compared to Dh756m ($205.8m) for the same period in 2011, on operating income of Dh2.937bn ($799.5m). Meanwhile, liquid assets to total assets stood at 27%.

At the end of the second quarter 2012, its total liabilities stood at Dh63.4bn ($17.3bn), down from Dh66.4bn ($18.1bn) at the end of 2011 and from Dh72.5bn ($19.7bn) at the end of 2010, while total equity rose from Dh12.8bn ($3.48bn) to Dh13bn ($3.5bn) over the same period.

Fitch Ratings affirmed Mashreq’s ‘A’ rating on September 26, 2012, adding the restructuring of some of its larger problem loans and a change in strategy would help boost core earnings.

STRENGTHENING PERFORMANCE: The fourth-largest bank by assets is CBD, with Dh38.2bn ($10.4bn). CBD’s customer loans and advances stood at Dh26.8bn ($7.3bn) at the end of third quarter 2012, up by 2% over Dh26.3bn ($7.2bn) as at September 30, 2011. At the end of the third quarter 2012 total deposits at Dh27.9bn ($7.6bn) remained at the September 30, 2011 level. The bank’s third-quarter 2012 net profit increased by 4.5% when compared to second quarter of 2012. CBD’s CAR was one of the highest in the UAE, strengthening to 24.5% from 23.1% at the end of 2011. In terms of impairments, impairment allowances of Dh296m ($80.6m) were booked against the bank’s loans and advances portfolio in the first nine months of 2012, 30% higher than the charge for the same period previous year, resulting in a non-performing loans coverage ratio of 77%. General provisions accounted for just 1.46% of the bank’s risk-weighted assets. CBD started out in 1969, with the Dubai government now a 20% stakeholder, while the other 80% is held by various UAE nationals.