Emirates NBD CFO resigns as banks post financial results

The sudden resignation of Emirates NBD chief financial officer, Sanjay Uppal is bound to concern Dubai Financial Market traders this week as the first bank financial statements for the first quarter are only days away.

No official comment has been forthcoming about Mr Uppal’s decision to leave his job, and there has been nothing to link it to the upcoming financial statement from the bank.

Rising provisions

Analysts are expecting first quarter banking provisions to be substantial but they are not anticipating profits to fall below the levels seen in the last two quarters of 2009. Indeed, some even suggest that banks may have overdone provisions in 2009 and that will flatter Q1 profits this year.

They also note that S&P credit rating downgrades last week for Dubai and Abu Dhabi companies actually avoided all the banks, and Mashreqbank was even upgraded. Moody’s has also said it was unlikely that the proposed debt restructuring at Dubai World would have further negative implications for the UAE banking sector.

But the UAE banks are not entirely out of the woods just yet. Non performing loans are expected to peak at 6.4 per cent this year against 4.4 per cent now. And lending last year grew by just 2.4 per cent compared to above 30 per cent in the boom of 2009.

Last year the UAE banks increased their provisions against non performing loans by 70 per cent to $12.5 billion under the guidance of the central bank. Whether this is enough to pull them clear of the worst real estate crash in living memory is not clear.

Property oversupply

A lot will depend on the recovery profile. If property prices decline further with new supply coming on stream and vacancy rates rising then the banks may have no alternative but to make further provisions and foreclose on more of their customers.

It is indeed astonishing how few foreclosures have been executed by the banks so far, and it may yet be that this tolerant approach to lending backfires and necessitates another round of provisions that will impact significantly on future financial results from the banks.

That is the market risk that anybody buying UAE bank stocks for the recovery faces. Is the current stabilization of the local property market just a resting stage on the way down, or the harbinger of a more solid recovery?

If you accept the recent reports on the huge oversupply of property coming up in the UAE it is hard to think the banks are out of trouble just yet.