UAE top banks' profits set to improve as provisioning eases -Moody's

Emirates NBD bank is seen in Mall of Emirates in Dubai, United Arab Emirates, December 30, 2018. REUTERS/ Hamad I Mohammed

DUBAI, Aug 31 (Reuters) - The United Arab Emirates' top banks are likely to see profits increase over the next 12 to 18 months as they book lower loan-loss provisions while the economy recovers from the coronavirus shock, ratings agency Moody's said on Tuesday.

In the first half of the year, the UAE's largest four banks - First Abu Dhabi Bank (FAB.AD), Emirates NBD (ENBD.DU), Abu Dhabi Commercial Bank (ADCB.AD) and Dubai Islamic Bank (DISB.DU) - posted a combined net profit of $4 billion, up 17% over the same period last year.

That was partly because lenders set aside lower provisions for potential loan losses - provisioning declined by 38% year on year in the first half.

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But Moody's cautioned that this could change when a stimulus measure introduced by the UAE central bank ends.

"Provisioning could potentially pick up once again when the central bank's loan repayment deferral program TESS ends, potentially resulting in a rise in problematic loans as distressed customers face repayment pressures due to the pandemic," said the agency.

Financing provided by the UAE central bank for loan deferrals under the Targeted Economic Support Scheme (TESS) - which was introduced last year to mitigate the impact of the pandemic on the economy - has been extended until the end of this year. read more

Profits at the UAE's four largest banks are expected to go back to pre-pandemic levels in 2022 or 2023, Moody's said.

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Reporting by Davide Barbuscia; Editing by Steve Orlofsky

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