Bad loans drop after new central bank methodology

NPL ratio of the UAE banking system stood at 5.6 per cent for the year-end 2018.

Non-performing loans (NPLs) of the UAE banks went down following the introduction of new methodology announced by the Central Bank of the UAE on Wednesday.
Under the new reporting standard, the NPL ratio of the UAE banking system stood at 5.6 per cent in 2018 instead of 7.1 per cent under the previous reporting methodology. Similarly, NPL ratio of national banks and branches of foreign banks operating in the UAE was adjusted down from 7.2 per cent to 5.7 per cent by the end of first quarter of 2019.
The central bank said the NPL ratio was overstated under the previous reporting methodology when compared to other countries due to the inclusion of interest in suspense. The NPL ratio excludes interest in suspense from both nominator and denominator. The Net NPL ratio excludes specific provisions and interest in suspense from both nominator and denominator. The new changes will be reflected in the upcoming publications by the central bank and communication with stakeholders as of the third quarter of 2019.
The central bank's first-quarter 2019 report said gross credit increased by Dh26.4 billion or 1.1 per cent, which corresponds to a growth of a 4.2 per cent year-on-year.
Professional services firm Alvarez & Marsal had said loans and advances for the top nine banks grew at a faster rate - 1.54 per cent - than deposits, which was negative (-0.67 per cent) after six consecutive periods of increase.
Overall loans to deposit ratio (LDR) increased to 88.3 per cent with eight of top nine banks in the LDR "green zone" of between 80 and 100 per cent.
Saeeda Jaffar, managing director and Middle East Office co-head, Alvarez & Marsal, said overall the profitability for the UAE banks has increased. This stems from increased operating income, reduced costs and increased balance sheet leveraging, offset by an increase in cost of risk.
- waheedabbas@khaleejtimes.com