Download UAE Banking Sector Chart Book: Q3 2016 Review

UAE Banking Sector Chart Book: Q3 2016 Review
14 December, 2016
Alp Eke / Rakesh Sahu
Market Insights & Strategy
NBAD Global Markets
1
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22
Banking Sector Assets (AED Billion)
In 2016Q3, UAE banking system had 23 local and 28 foreign banks. In October 2016, banking sector assets (net of provisions and interest in
suspense) US$662billion (5 % y-o-y).
Assets
2,437
60%
% change y-o-y (LHS)
2,600
2,400
2,200
50%
2,000
1,800
40%
1,600
1,400
30%
1,200
1,000
20%
800
600
5.00%
10%
400
200
0%
Oct-00
Source: CBUAE
Oct-02
Oct-04
Oct-06
Oct-08
Oct-10
Oct-12
Oct-14
0
Oct-16
33
Banking Sector Net Loans (AED Billion)
In October 2016, loans reached AED 1,463 billion (US$ 397.3 billion), up 5.83% y-o-y. Personal loans accounted for 30% of total loan followed by
construction loans (17.43%).
Net Loans
1,463
12%
% change y-o-y (RHS)
1,500
1,450
10%
1,400
1,350
8%
5.83%
1,300
6%
1,250
`
1,200
4%
1,150
1,100
2%
1,050
0%
Feb-10
Source: CBUAE
Oct-10
Jun-11
Feb-12
Oct-12
Jun-13
Feb-14
Oct-14
Jun-15
Feb-16
1,000
Oct-16
44
Claims on Private Sector (AED Billion)
According to latest available data covering October 2016, claims on private sector increased by 5.85% y-o-y to US$ 290bn.
Claims on Private Sector
1,068
30%
% change y-o-y (LHS)
1100
1050
25%
1000
20%
950
900
15%
850
5.85%
10%
800
750
5%
700
0%
650
-5%
Feb-10
Source: CBUAE
Oct-10
Jun-11
Feb-12
Oct-12
Jun-13
Feb-14
Oct-14
Jun-15
Feb-16
600
Oct-16
55
Banking Sector Net Assets Share 2016Q3 (%)
In 2016Q3, UAE banking system had 23 local and 28 foreign banks. In October 2016, banking sector assets (net of provisions and interest in
suspense) stood at US$692.83billion (+5.1 % y-o-y). NBAD's total assets in 2016Q3 period increased 2.5% y-o-y and reached AED 415 billion
(US$112.8bn). Four local banks (ENBD, NBAD, ADCB and FGB) have almost 53% of the total assets.
NBAD
16.3%
Others
22.7%
RAKBANK
1.6%
ENBD
17.5%
CBD
2.4%
UNB
4.1%
ADIB
4.8%
FGB
9.1%
Mashreq
4.7%
DIB
6.7%
Source: NBAD
ADCB
10.0%
66
Banking Sector Deposits Share 2016Q3 (%)
In 2016Q3, deposits reached AED 1,508 billion {US$410.8billion (5% y-o-y)}. In 2016Q3 NBAD deposits increased AED 243 billion (US$66bn)
(3.3% y-o-y). Four local banks (ENBD, NBAD, ADCB and FGB) have around 56% of the total deposits. UAE banking system doesn’t have a deposit
insurance system however all the banks succeeded to pay the depositors following the financial crisis.
Others
14.5%
NBAD
16.1%
RAKBANK
1.9%
CBD
2.8%
UNB
5.0%
ENBD
20.7%
ADIB
6.5%
Mashreq
5.0%
DIB
8.1%
Source: NBAD
ADCB
10.2%
FGB
9.3%
77
Banking Sector Loan Share 2016Q3 (%)
In 2016Q3 NBAD loans declined to AED 205billion (US$55bn) (-3.2% y-o-y). Emirates NBD has 20% of the banking sector loans. Four local banks
(ENBD, NBAD, ADCB and FGB) have almost 56% of the total loans.
NBAD
14.1%
Others
17.3%
RAKBANK
1.9%
CBD
2.8%
ENBD
19.8%
UNB
5.0%
ADIB
5.4%
Mashreq
4.3%
DIB
7.6%
Source: NBAD
FGB
10.7%
ADCB
11.1%
88
Assets to GDP Ratio
UAE banking sector had 930 branches. In 2016, the assets to GDP is expected to pass 190%. Growth in banking sector assets is much faster than
growth of GDP.
750
200%
Banking Sector Assets(US$ Billion)
Assets to GDP (RHS)
191.5%
190%
650
180%
170%
550
160%
450
150%
140%
350
130%
120%
250
110%
150
100%
2006
Source: CBUAE
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016F
99
Loans to GDP Ratio
Central Bank regulations limit personal loan amounts to 20 times salary with a max payment period of 48 months. Loans to GDP ratio has been
increasing and passed above 100%. Nominal GDP is expected contracted due to declining oil prices in 2015.
450
120%
Banking Sector Loans (US$ Billion)
Loans to GDP (RHS)
400
110%
106.4%
350
100%
300
90%
250
80%
200
70%
150
100
60%
2006
Source: CBUAE
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016F
1010
Real Effective Exchange Rate
REER is the weighted average of a country's currency relative to an index or basket of other major currencies adjusted for the effects of inflation.
REER (AED) is currently at around 120, which shows the currency is over-valued 20% and needs to correct to approach its fair value of 100. A
strong AED helps imports and reduces imported inflation but can affect trade competitiveness by makings exports more expensive. Since UAE is
import based economy and main item for exports are hydro-carbons, the currency to remain a bit over-valued is good for the economy. UAE
dirham is pegged. The UAE central bank announced in September 2015 that AED will remain pegged to the US$.
125
121.23
120
115
110
105
100
95
90
85
80
Oct-07
Source: CBUAE
Oct-08
Oct-09
Oct-10
Oct-11
Oct-12
Oct-13
Oct-14
Oct-15
Oct-16
1111
Loans to Residents by Economic Activity (AED Billion)
Latest available loan breakdown as of end 2016Q3 shows the loans grew by 5.84% y-o-y. Government, personal, construction, and transport /
communication loans were the main drivers of credit growth in the past year. Personal loans accounted for 30% of total loan followed by
construction loans (17.4%). Central Bank regulations limit personal loan amounts to 20 times salary with a maximum payment period of 48
months. Personal loans reached AED 434 billion (5.3% y-o-y) and personal loans per capita increased to AED 42,600.
60%
1500
1400
Transport
Other
1300
50%
1200
1100
40%
1000
Government
Personal Business
Personal Consumption
900
800
30%
20%
Non-Bank FIs
700
Trade
600
Construction
500
Utilities
400
300
10%
5.8% 200
100
0%
2006Q3
Source: CBUAE
2008Q3
2010Q3
2012Q3
2014Q3
0
2016Q3
Manufacturing
Mining/Quarrying
Agriculture
% chng y-o-y (LHS)
1212
Certificates of Deposit (AED Billion)
Certificates issued by the CB and sold only to banks to absorb excess liquidity and are also used as an indicator to determine domestic interest
rates. Pre-Crisis in 2008Q3, hot money was flowing into UAE banking system, and annual lending growth exceeded 25% during 2007-2008.
CBUAE also increased policy rates applied to CDs 25bps in line with US FED decision. Certificates of Deposits are the monetary policy instruments
through which changes in interest rates are transmitted to UAE banking system.
450%
220
Certificates of Deposit
Annual Growth (LHS)
400%
200
350%
180
300%
160
250%
140
200%
120
150%
100
100%
80
50%
60
0%
40
-50%
20
-100%
Aug-06
Source: CBUAE
Aug-08
Oct-10
Oct-12
Oct-14
0
Oct-16
1313
Provisions & Non-Performing Loans
Provisions to gross loans estimated at a new high of 8% in August 2014 but dropped to 7% by April 2015. Provision growth declined drastically
and now largely driven by specific provisions. According to CBUAE 2016Q3 data NPL ratio is 6.3%. The ratio has improved and stabilized, except
SME defaults there are no major defaults. Exposure to SME and real estate is a major worry. SME sector has been negatively affected by
uncertainty in payment schedules and liquidity issues in the banking sector.
General Provisions (LHS)
120
Specific Provisions (LHS)
9%
NPLs % of Loans(RHS)
100
Provisions % of Loans(RHS)
90
8%
Provision Growth (LHS)
80
7%
70
6%
60
50
5%
40
% of Gross Loans
110
AED billion and % change y-o-y
10%
4%
30
20
3%
10
2%
0
1%
-10
-20
Apr-09
Source: CBUAE
Jan-10
Oct-10
Jul-11
Apr-12
Jan-13
Oct-13
Jul-14
Apr-15
Jan-16
0%
Oct-16
1414
Loans to Deposit Ratio
Banking sector liquidity has deteriorated. It is reflected in the net loan-to-deposit ratio increase since June 2014. LTD ratio reached lowest point
at 87%. Currently in October 2016, LTD ratio is at around 104.5%. Interbank rates have been increasing since March 2015.
115%
Gross LTD
Net LTD
104.5%
110%
105%
100%
95%
90%
85%
Oct-08
Source: CBUAE
Oct-09
Oct-10
Oct-11
Oct-12
Oct-13
Oct-14
Oct-15
80%
Oct-16
1515
Banking Sector Deposits (AED Billion)
In October 2016, deposits reached AED 1,503bn (US$408.5 billion), up 4.72% y-o-y. In October 2016, Government deposits decreased to AED
158 billion and constituted 10.7% of total deposits.
1,600
Deposits (AED billion)
16%
1,503
18%
% change y-o-y (LHS)
1,500
14%
1,400
12%
10%
1,300
8%
4.7%
1,200
6%
1,100
4%
2%
1,000
0%
900
-2%
-4%
Feb-10
Source: CBUAE
Oct-10
Jun-11
Feb-12
Oct-12
Jun-13
Feb-14
Oct-14
Jun-15
Feb-16
800
Oct-16
1616
Monetary Aggregates (% change y-o-y)
Broad money aggregate M3 increased by 1.63% y-o-y in October 2016. Growth in narrow money aggregate M1 was a bit more rapid at +3.66% yo-y. CBUAE followed accommodating monetary policy in light of the reduced inflation rate. The central bank will follow the dollar peg.
30%
M1 %change y-o-y
M2 %change y-o-y
25%
M3 %change y-o-y
20%
15%
10%
5%
3.7%
0%
Oct-10
Source: CBUAE
Oct-11
Oct-12
Oct-13
Oct-14
Oct-15
-5%
Oct-16
1717
5Y CDS Spread - Selected Entities (basis points)
AD Govt CDS was at 66 basis points by the end November 2016, down six basis points from the beginning of this year. The CDS touched as high
as 147bps on January 20 of 2016, when oil prices collapsed to record low. Since then the CDS spread for Abu Dhabi Govt has almost halved. The
all time low for AD CDS was 42.5 basis points at the end of May 2014. Dubai Gov. CDS has declined some 169bps from the highs of 2016 to 155
by end of November 2016. CDS spreads fell in last few weeks due to increase in oil prices and the robust performance of the non-oil sector. AD
currently has AA rating and very low Debt-GDP ratio.
800
Abu Dhabi Government
Dubai Government
700
NBAD
Emirates NBD
Societe General
600
BNP
Bank of America
500
400
300
200
100
0
Nov-07
Source: Bloomberg
Nov-08
Nov-09
Nov-10
Nov-11
Nov-12
Nov-13
Nov-14
Nov-15
Nov-16
1818
Selected Interbank Rates
Local currency interbank rates have historically been close to US$ rates given the context of the exchange rate peg, but these diverged in 2009.
Improvement in liquidity and scrutiny by the Central Bank is resulting in gradual convergence. LIBOR and EIBOR have almost diverged to same
levels. EIBOR had upward trajectory starting from the second half of 2015. UAE CB raised interest rates of certificates of deposits in line with FED
decision. UAE maintains its safe-haven status and the currency is pegged to the US$, the Eibor, will probably continue to provide cheap funding.
7.0
3M AED Interbank Rate
6.5
3M USD LIBOR
6.0
3M Euribor
5.5
5.0
4.5
4.0
3.5
3.0
2.5
2.0
1.5
1.41
1.0
0.94
0.5
0.0
-0.31
-0.5
-1.0
Nov-00
Source: Bloomberg
Nov-02
Nov-04
Nov-06
Nov-08
Nov-10
Nov-12
Nov-14
Nov-16
1919
Selected Sovereign Yields
As per the US GDP data released at the end of 2016Q3, growth was higher than expectations. The latest statements by FOMC are an indication
that inflation is moving closer to long-run objective of the FED. ECB and FED are diverging in policy directions (Easing & Tightening) which is
raising market uncertainty. With the recent data indicating weak growth and low inflation ECB is focusing on medium term targets and started
bond purchase program. Sovereign yields are expected to increase due to fiscal deterioration as a result of declining oil revenues.
9.0
10Y UST
8.5
10Y Bund
8.0
2Y UST
7.5
ADGB2019
7.0
DUGB2020
6.5
6.0
5.5
5.0
4.5
4.0
3.5
3.0
2.5
2.0
1.5
1.0
0.5
0.0
-0.5
-1.0
Nov-00
Source: Bloomberg
Nov-02
Nov-04
Nov-06
Nov-08
Nov-10
Nov-12
Nov-14
Nov-16
2020
UAE Central Bank FX Reserves (AED Billion)
In October 2016, CB FX assets were at AED 295.1 billion, up 3.36% y-o-y, but down from AED 341.1 billion in December 2015. Cash, bank
balances and deposits with banks abroad dropped the most.
80%
360
CB FX Assets
% change y-o-y (RHS)
340
320
295
60%
300
280
40%
260
240
20%
220
`
3.36%
200
0%
180
160
-20%
140
120
-40%
100
Oct-11
Source: CBUAE
Apr-12
Oct-12
Apr-13
Oct-13
Apr-14
Oct-14
Apr-15
Oct-15
Apr-16
Oct-16
2121
Government & Public Sector Deposits (AED Billion)
Latest available Central Bank data showed that in October 2016 Government and Public Sector deposits decreased to AED 320bn, down 5% y-oy. In October 2016, government deposits decreased to AED 158bn. Oil price for YTD 2016 has averaged around US$45. The oil sector is estimated
to constitute 50% of government revenues, thus the drop in oil prices forcing GCC nations to use their reserves. Considering potential increases
in supply of oil not being matched by demand, we may have an extended period of low oil prices so tight liquidity in banking sector is expected
to continue.
50%
420
Residents - Govt + Public Sector Deposits
400
% change y-o-y (RHS)
380
40%
319
360
30%
340
320
300
20%
280
260
`
240
10%
220
200
0%
-4.7%
180
-10%
160
140
120
-20%
Feb-10
Source: CBUAE
Oct-10
Jun-11
Feb-12
Oct-12
Jun-13
Feb-14
Oct-14
Jun-15
Feb-16
100
Oct-16
2222
12M Rolling Sum Listed Bank Profits (AED Billion)
In 2016Q3, 12M rolling sum listed bank profits declined to US$ 9.63 billion (-7% y-o-y). Banking system stability indicators have been improving
in recent years. Banking sector is by far the most profitable sector.
60%
40
Listed Banks Profit
% change y-o-y (LHS)
38
50%
35
40%
36
34
32
30%
30
20%
28
26
10%
24
-7.0%
0%
22
20
-10%
18
-20%
16
14
-30%
12
-40%
10
09Q1
Source: CBUAE
10Q3
12Q1
13Q3
2015Q1
2016Q3
2323
Contact
Alp Eke
Senior Economist
Rakesh Sahu
Analyst
Market Insights & Strategy
Global Markets
National Bank of Abu Dhabi
Tel: +971 2 6110 127
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