(MENAFN- Gulf Times) National Bank of Abu Dhabi (NBAD) is expecting a tougher 2015 as lower oil prices hit economic growth and growing competition squeezes profit margins, the head of the UAE's largest lender by assets said yesterday.
NBAD was the latest UAE lender to post strong fourth-quarter earnings, beating analyst forecasts with a 27.6% rise in net profit to 1.37bn dirhams ($373mn), helped by higher fee income and lower impairments.
But a 60% drop in oil prices since June has some governments in the Gulf region forecasting deficits this year, which is set to curb economic growth. The International Monetary Fund this month cut its 2015 gross domestic product growth forecast for the UAE by one percentage point to 3.5%.
"Growth rates will not be as great," NBAD chief executive Alex Thursby told reporters, without being more specific. "Institutions will be chasing a more limited pie. We will have good-to-average growth and competition has not shut up."
The bank profitability has already been challenged by the impact of low interest rates on their traditional lending businesses, compounded by competition between cash-rich local banks.
Despite increasing its current and savings account deposits, which cost very little to service and which brings down funding costs, NBAD's net interest margin (NIM) declined 0.02 percentage points to 1.96% in the fourth quarter.
While dependent on market conditions, the pressure on NIMs-the amount made on lending over the cost of initially securing funds-was set to continue, Thursby said.
The US is expected to start raising interest rates later this year, which analysts think will see some funds previously placed in emerging markets return to America.
"There's possibility liquidity will start disappearing or reducing in the second half, particularly in US dollars," Thursby said, without specifically mentioning US policy.
After several quarters of low interest rates, NBAD has been refocusing its strategy to earn more from its fee-paying business and this income rose 20.8% in the fourth quarter.
But despite continuing strength in non-interest income in 2015, NBAD will remain reliant on NIM, Thursby said.
Loan growth in 2015 would be around "mid-single-digits" next year, he added. That would put it in line with the 6% growth achieved in 2014.
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