Bad loan provisions surged across UAE’s four biggest banks last year: Moody’s

UAE banks are setting aside more money to cover the risk of bad loans. (Reuters)

• Banks have strong buffers despite pandemic
• Net interest income to remain under pressure

DUBAI: The four biggest UAE banks reported a 43 percent jump in bad loan provisions last year according to a report from Moody’s.
The credit ratings agency expects UAE bank profitability to remain under pressure in 2021 as provisions increase further.
“The increase in loan loss charges, was related to the pandemic and to the weakening of some large corporate names in the domestic market prior to the pandemic,” said the report. “Although the four banks’ loan loss buffers remain solid, we expect higher provisioning during 2021 due to further asset quality deterioration.”
Banks worldwide have come under pressure over the last year as companies were forced out of business and people’s finances became stretched after losing their jobs. At the same time borrowers found it more difficult to pay back loans on time, placing additional pressure on the balance sheets of big lenders.
Moody’s analyzed the performance of First Abu Dhabi Bank, Emirates NBD, Abu Dhabi Commercial Bank and Dubai Islamic Bank, which together account for three-quarters of the UAE’s banking sector assets.
Pressure on net interest income, the main revenue source for the banks, is expected to persist through 2021.
However the impact of this will be softened by higher lending volumes as coronavirus-related restrictions ease and the vaccination rollout helps lower infection rates, Moody’s said.