The UAE’s banking sector is expected to perform better in 2017 in terms of asset growth, asset quality and profitability compared to 2016, said Dr Bernd van Linder, Chief Executive Officer of Commercial Bank of Dubai (CBD).
Speaking to reporters at the bank’s headquarters in Dubai on Monday, van Linder said with improvements in macroeconomic conditions in the country and GCC region, the banking sector is expected to witness improved operating environment resulting in better performance.
“The UAE’s banking sector is in reasonably good shape. We expect overall loan growth for the sector in the range of 2 to 5 per cent this year. While the overall liquidity situation has improved from last year, provisions have largely stabilised and the capitalisation levels are strong across the sector,” said van Linder.
The UAE banking sector faced a general spike in loan impairments and provisions from the second quarter of 2015, specifically in some segments such as small and medium enterprises, retail loans and some of the unsecured lending portfolios.
While banks have largely repaired their balance sheets, some amount of impairments and resulting provisions are expected to linger on for a few more quarters, but the situation is likely to get better compared to last year, he said.
CBD, he said is in a much stronger position in terms of assets growth, asset quality and margins compared to last year. In the first quarter of 2017 the bank’s operating income increased by 9 per cent to Dh627.9 million, mainly due to a 5.7 per cent increase in net interest income to Dh430.1 million compared to Dh407 million and a 16.9 per cent increase in non-interest income to Dh197.9 million from Dh169.3 million in the same quarter last year. The bank’s fees and commission incomes were up 28.5 per cent and other income up 22.5 per cent respectively in the first quarter year on year.
Total assets were up 4.2 per cent at Dh66.8 billion at the close of the first quarter of this year compared to the same period last year. Loans and advances increased by 13.6 per cent to Dh44 billion from Dh38.8 billion at the close of the first quarter last year.
Personal and business banking gross loans at Dh8.2 billion registered an increase of 4.9 per cent as corporate and commercial banking gross loans were up 4.6 per cent at Dh39.8 billion at the close of the first quarter 2017 compared to year end 2016.
“Our core client segments, corporate and commercial returned a strong performance with a 4.6 per cent lending growth. We expect to build our retail business further on our strength in corporate and commercial business,” he said.
Rising US interest rates, he said will be positive for CBD’s net interest margins because of strong low cost Current and savings accounts [CASA) deposits that are relatively less sensitive to interest rates. CBD’s customers’ deposits increased by 11.7 per cent in the first quarter of this year to Dh45.9 billion compared to Dh41.1 billion at the close of the first quarter last year. Current and savings accounts [CASA] balances represent 50 per cent of the total deposits and the liquidity is strong with loans to deposits ratio at 95.8 per cent at the end of the first quarter.
Expansion plans
CBD is planning to expand its reach in Abu Dhabi. “By expansion we do not necessarily mean branch expansion. We want to reach out to more customers in Abu Dhabi through our electronic channels,” he said.
The bank recently launched CBD Now, the UAE’s first digital-only bank targeting millennial and digitally connected customers. The new proposition allows customers to completely change the way they manage their finances using technology to serve all their banking needs.
“Our customers want to bank in the most convenient way. All our digital propositions have been well accepted by our customers with more than 96 per cent of the non-branch transactions now done digitally,” he said.
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