First quarter 2006 financial results saw UAE banks delivering positive growth, with profitability boosted by the strong growth in fee income generated from IPO financing, mortgages, personal loans, and credit cards, which has outweighed the decline in investment income due to the negative performance of regional equity markets. Similarly, IPO financing had a significant positive impact on net interest income. However, the IPO related financing and customer deposits across all UAE banks, particularly the local banks, have caused distortion and irregularity in banks’ reported balance sheets.
According to an EFG-Hermes research report, which covers a basket of UAE banks, banks’ growth in 1Q2006 is divided into two groups: The first group is characterized by fast asset growth, even after stripping out the contribution of IPO-related financing and subscription collection. The second group is characterized by moderate asset growth.
In terms of “real” deposit growth, and “real” loan growth, banks that have outperformed their peer groups are those that have taken a lead role in the Tamweel or Du IPOs.
“Obviously, providing IPO related customer services opens the channels for retaining new walk-in customers that may have only dealt with a particular bank as a receiving bank at the time of IPO subscription. Thus, it seems that participating actively in IPO activities can boost growth in the sustainable deposit base,” explains Marwa El Sheikh, senior banking sector analyst at EFG-Hermes.
UAE banks have been directly, through equity holdings, and indirectly, through margin lending to individuals and institutions, exposed to a sharp 53% correction in the Dubai Securities Index (DSI) and 34% in the Abu Dhabi Index (ADI) year-to-date.
