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(MENAFN - Khaleej Times) Brokerage HC Securities has raised its 2009 and 2010 earnings estimates for Union National Bank, citing its better-than-expected performance in the third quarter, and expectations of lower provisions for losses in 2010.
HC Securities' earnings estimate for UNB in 2009 was hiked by 35 per cent to Dh1.30 billion from Dh969.7 million. For 2010, earnings estimate was revised upwards by 21 per cent to Dh1.50 billion compared to the original forecast of Dh1.24 billion.
The brokerage kept its 'buy' recommendation on the stock, and raised its target price to Dh4.90 from Dh4.70.
It said the bank's net income of Dh358 million in the third quarter beat its expectations of
Dh213 million.
Earnings in the third quarter were dirven primarily by benign credit charges and stronger fee/investment income.
On the other hand, loan loss provisioning during the quarter was Dh31 million, which is 59 per cent lower than the second quarter, this was also 70 per cent lower than HC
Securities' estimates.
"We believe the second quarter charges were skewed by exposure to the troubled Saudi group, and perhaps the worst quarter, ruling out similar incidents
going forward."
It said UNB has a total exposure of Dh220 million to the Algosaibi group, which is about 0.4 per cent of gross loan portfolio.
HC Securities said that UNB may end up charging Dh30 million each quarter until the end of 2010 if it evenly spreads out the provisioning process. It said coverage ratio, or loan loss provision to non-performing loan, fell to 106 per cent from 113 per cent in the third quarter.
"We find the bank's asset quality intact, and expect its strategy of focusing on risk management, leading to lower credit charges."
HC Securities said it expected the bank to have lower loan oss provisions in 2009 and 2010 at
10 per cent, and
15 per cent, respectively.
The bank's firm footing is also being helped by higher margins, boosting its net interest income, as it benefits from high levels of liquidity which gives it the flexibility not to offer higher rates to retain and attract deposits.
"Higher liquidity is good in the current times, acting as a buffer against any unexpected shocks and losses. Also it provides the flexibility to deploy funds when economic conditions warrant."
Shares of UNB, which are listed at the Abu Dhabi Securities Exchange, shed 0.5 per cent at Dh3.50 on Thursday.
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