Slack economic growth in the Emirates is expected to mean a lacklustre quarter for the UAE's banks, analysts say, as investors instead turn to lenders in Qatar and Saudi Arabia in search of better profits.
As the second quarter ends, the UAE is expected to have registered another poor quarter of loan growth, said Shabbir Malik, a banking analyst at EFG Hermes. "I'm not very excited about loan growth," he said. "What I'm looking for is an easing of provisions. We saw some of that in Q1, and if we see a more sustained downwards trend that will be positive for the sector."
A slowdown in government spending this year has limited the ability of the private sector to expand and has also reduced borrowing requirements.
The latest available data from the Central Bank shows that loans and advances across the banking sector registered a minimal increase during the first four months of the year, up 0.1 per cent to Dh1.07 trillion (US$291.2 billion).
With lending growth limited, EFG Hermes expects the majority of UAE banks to record a change in quarterly earnings ranging from a negative 7 per cent at worst, to a positive 4 per cent at best, compared with a year earlier.
The exceptions are Abu Dhabi Commercial Bank, whose profits are expected to plunge 45 per cent, and Tamweel, whose profits could rise by 15 per cent.
In pursuit of stronger returns, investors are turning to Saudi Arabian banks, which are expected to start reporting earnings this week.
Yesterday, Riyad Bank said it would distribute dividends of 975 million Saudi riyals (Dh954.9m) for the first half of the year.
Meanwhile, Qatar National Bank is also tipped to be among the region's top performers when it reports earnings on Wednesday. Qatar's biggest lender is expected to show "bombastic" loan-book growth, said one analyst.
But despite slow growth in the UAE, European banks are expected to fare worse - leaving opportunities for local lenders to grow.
"The European lenders are curtailing their exposure to this region," said Mr Malik. "To meet those [tough capital requirements in their home countries] they're offloading some of their assets in this region … They'll most likely be taken up by UAE banks."