UAE: Abu Dhabi Financial Services

The banking sector in Abu Dhabi showed consistent increases in liquidity and net profits throughout 2012, largely aided by net-interest earnings and bigger profits from Islamic finance. Fourth-quarter results and a strong performance by many banks’ shares – the strongest in five years – have led many analysts to conclude that the sector is firmly on the path to recovery.

Growth in lending at the emirate’s top banks remained slow during the first half of 2012, but profits were generally up on those of the previous year. Meanwhile, the banking sector is preparing to comply with a new regulation from the Central Bank of the UAE that has been designed to reduce exposure to government-related entities (GREs).

With investor demand for Islamic bonds growing, Abu Dhabi-based businesses are increasingly turning to the sukuk market to finance their activities, with four companies since November 2011 having issued sharia-compliant debt instruments. Meanwhile, the first three months of 2012 saw two major conventional bond issuances from Dolphin Energy and the National Bank of Abu Dhabi (NBAD).

The four largest banks in Abu Dhabi reported an increase in annual profits for 2011 and, in two cases, have substantially exceeded analysts’ expectations. Meanwhile, lending in the UAE overall was up in 2011 and is expected to continue through 2012, with growth being driven in part by retail banking, including loans to small and medium-sized enterprises (SMEs).

Bucking the trend in most MENA financial markets, the Abu Dhabi Securities Exchange (ADX) has performed well of late, rebounding strongly from the financial crisis and avoiding more recent downturns that some exchanges have experienced.

Regulations enforcing higher capital standards in the UAE’s overcrowded insurance market have reduced the amount of insurance brokers, while slower growth in commercial business means the sector is looking to opportunities in the retail segment.