1

UAE Banking Sector Chart Book: Q3 2016 Review

14 December, 2016

Alp Eke / Rakesh Sahu

Market Insights & Strategy

NBAD Global Markets

22

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Disclaimer

33

Banking Sector Assets (AED Billion)

In 2016Q3, UAE banking system had 23 local and 28 foreign banks. In October 2016, banking sector assets (net of provisions and interest insuspense) US$662billion (5 % y-o-y).

Source: CBUAE

2,4

37

5.0

0%

0%

10%

20%

30%

40%

50%

60%

0

200

400

600

800

1,000

1,200

1,400

1,600

1,800

2,000

2,200

2,400

2,600

Oct-16Oct-14Oct-12Oct-10Oct-08Oct-06Oct-04Oct-02Oct-00

Assets % change y-o-y (LHS)

44

Banking Sector Net Loans (AED Billion)

In October 2016, loans reached AED 1,463 billion (US$ 397.3 billion), up 5.83% y-o-y. Personal loans accounted for 30% of total loan followed byconstruction loans (17.43%).

Source: CBUAE

1,4

63

5.8

3%

0%

2%

4%

6%

8%

10%

12%

1,000

1,050

1,100

1,150

1,200

1,250

1,300

1,350

1,400

1,450

1,500

Oct-16Feb-16Jun-15Oct-14Feb-14Jun-13Oct-12Feb-12Jun-11Oct-10Feb-10

Net Loans % change y-o-y (RHS)

`

55

Claims on Private Sector (AED Billion)

According to latest available data covering October 2016, claims on private sector increased by 5.85% y-o-y to US$ 290bn.

Source: CBUAE

1,0

68

5.8

5%

-5%

0%

5%

10%

15%

20%

25%

30%

600

650

700

750

800

850

900

950

1000

1050

1100

Oct-16Feb-16Jun-15Oct-14Feb-14Jun-13Oct-12Feb-12Jun-11Oct-10Feb-10

Claims on Private Sector % change y-o-y (LHS)

66

Banking Sector Net Assets Share 2016Q3 (%)

In 2016Q3, UAE banking system had 23 local and 28 foreign banks. In October 2016, banking sector assets (net of provisions and interest insuspense) stood at US$692.83billion (+5.1 % y-o-y). NBAD's total assets in 2016Q3 period increased 2.5% y-o-y and reached AED 415 billion(US$112.8bn). Four local banks (ENBD, NBAD, ADCB and FGB) have almost 53% of the total assets.

Source: NBAD

NBAD16.3%

ENBD17.5%

FGB9.1%

ADCB10.0%

DIB6.7%

Mashreq4.7%

ADIB4.8%

UNB4.1%

CBD2.4%

RAKBANK1.6%

Others22.7%

77

Banking Sector Deposits Share 2016Q3 (%)

In 2016Q3, deposits reached AED 1,508 billion {US$410.8billion (5% y-o-y)}. In 2016Q3 NBAD deposits increased AED 243 billion (US$66bn)(3.3% y-o-y). Four local banks (ENBD, NBAD, ADCB and FGB) have around 56% of the total deposits. UAE banking system doesn’t have a depositinsurance system however all the banks succeeded to pay the depositors following the financial crisis.

Source: NBAD

NBAD16.1%

ENBD20.7%

FGB9.3%ADCB

10.2%

DIB8.1%

Mashreq5.0%

ADIB6.5%

UNB5.0%

CBD2.8%

RAKBANK1.9%

Others14.5%

88

Banking Sector Loan Share 2016Q3 (%)

In 2016Q3 NBAD loans declined to AED 205billion (US$55bn) (-3.2% y-o-y). Emirates NBD has 20% of the banking sector loans. Four local banks(ENBD, NBAD, ADCB and FGB) have almost 56% of the total loans.

Source: NBAD

NBAD14.1%

ENBD19.8%

FGB10.7%

ADCB11.1%

DIB7.6%

Mashreq4.3%

ADIB5.4%

UNB5.0%

CBD2.8%

RAKBANK1.9%

Others17.3%

99

Assets to GDP Ratio

UAE banking sector had 930 branches. In 2016, the assets to GDP is expected to pass 190%. Growth in banking sector assets is much faster thangrowth of GDP.

Source: CBUAE

191.5%

100%

110%

120%

130%

140%

150%

160%

170%

180%

190%

200%

150

250

350

450

550

650

750

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016F

Banking Sector Assets(US$ Billion) Assets to GDP (RHS)

1010

Loans to GDP Ratio

Central Bank regulations limit personal loan amounts to 20 times salary with a max payment period of 48 months. Loans to GDP ratio has beenincreasing and passed above 100%. Nominal GDP is expected contracted due to declining oil prices in 2015.

Source: CBUAE

106.4%

60%

70%

80%

90%

100%

110%

120%

100

150

200

250

300

350

400

450

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016F

Banking Sector Loans (US$ Billion) Loans to GDP (RHS)

1111

Real Effective Exchange Rate

REER is the weighted average of a country's currency relative to an index or basket of other major currencies adjusted for the effects of inflation.REER (AED) is currently at around 120, which shows the currency is over-valued 20% and needs to correct to approach its fair value of 100. Astrong AED helps imports and reduces imported inflation but can affect trade competitiveness by makings exports more expensive. Since UAE isimport based economy and main item for exports are hydro-carbons, the currency to remain a bit over-valued is good for the economy. UAEdirham is pegged. The UAE central bank announced in September 2015 that AED will remain pegged to the US$.

Source: CBUAE

121.23

80

85

90

95

100

105

110

115

120

125

Oct-07 Oct-08 Oct-09 Oct-10 Oct-11 Oct-12 Oct-13 Oct-14 Oct-15 Oct-16

1212

Loans to Residents by Economic Activity (AED Billion)

Latest available loan breakdown as of end 2016Q3 shows the loans grew by 5.84% y-o-y. Government, personal, construction, and transport /communication loans were the main drivers of credit growth in the past year. Personal loans accounted for 30% of total loan followed byconstruction loans (17.4%). Central Bank regulations limit personal loan amounts to 20 times salary with a maximum payment period of 48months. Personal loans reached AED 434 billion (5.3% y-o-y) and personal loans per capita increased to AED 42,600.

Source: CBUAE

5.8%

0%

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20%

30%

40%

50%

60%

0

100

200

300

400

500

600

700

800

900

1000

1100

1200

1300

1400

1500

2016Q32014Q32012Q32010Q32008Q32006Q3

Transport

Other

Government

Personal Business

Personal Consumption

Non-Bank FIs

Trade

Construction

Utilities

Manufacturing

Mining/Quarrying

Agriculture

% chng y-o-y (LHS)

1313

Certificates of Deposit (AED Billion)

Certificates issued by the CB and sold only to banks to absorb excess liquidity and are also used as an indicator to determine domestic interestrates. Pre-Crisis in 2008Q3, hot money was flowing into UAE banking system, and annual lending growth exceeded 25% during 2007-2008.CBUAE also increased policy rates applied to CDs 25bps in line with US FED decision. Certificates of Deposits are the monetary policy instrumentsthrough which changes in interest rates are transmitted to UAE banking system.

Source: CBUAE

-100%

-50%

0%

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250%

300%

350%

400%

450%

0

20

40

60

80

100

120

140

160

180

200

220

Oct-16Oct-14Oct-12Oct-10Aug-08Aug-06

Certificates of Deposit Annual Growth (LHS)

1414

Provisions & Non-Performing Loans

Provisions to gross loans estimated at a new high of 8% in August 2014 but dropped to 7% by April 2015. Provision growth declined drasticallyand now largely driven by specific provisions. According to CBUAE 2016Q3 data NPL ratio is 6.3%. The ratio has improved and stabilized, exceptSME defaults there are no major defaults. Exposure to SME and real estate is a major worry. SME sector has been negatively affected byuncertainty in payment schedules and liquidity issues in the banking sector.

Source: CBUAE

-20

-10

0

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20

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60

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100

110

120

0%

1%

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9%

10%

Oct-16Jan-16Apr-15Jul-14Oct-13Jan-13Apr-12Jul-11Oct-10Jan-10Apr-09

AED

bill

ion

an

d %

ch

ange

y-o

-y

% o

f G

ross

Lo

ans

General Provisions (LHS)

Specific Provisions (LHS)

NPLs % of Loans(RHS)

Provisions % of Loans(RHS)

Provision Growth (LHS)

1515

Loans to Deposit Ratio

Banking sector liquidity has deteriorated. It is reflected in the net loan-to-deposit ratio increase since June 2014. LTD ratio reached lowest pointat 87%. Currently in October 2016, LTD ratio is at around 104.5%. Interbank rates have been increasing since March 2015.

Source: CBUAE

10

4.5

%

80%

85%

90%

95%

100%

105%

110%

115%

Oct-08 Oct-09 Oct-10 Oct-11 Oct-12 Oct-13 Oct-14 Oct-15 Oct-16

Gross LTD Net LTD

1616

Banking Sector Deposits (AED Billion)

In October 2016, deposits reached AED 1,503bn (US$408.5 billion), up 4.72% y-o-y. In October 2016, Government deposits decreased to AED158 billion and constituted 10.7% of total deposits.

Source: CBUAE

1,5

03

4.7

%

-4%

-2%

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

800

900

1,000

1,100

1,200

1,300

1,400

1,500

1,600

Oct-16Feb-16Jun-15Oct-14Feb-14Jun-13Oct-12Feb-12Jun-11Oct-10Feb-10

Deposits (AED billion) % change y-o-y (LHS)

1717

Monetary Aggregates (% change y-o-y)

Broad money aggregate M3 increased by 1.63% y-o-y in October 2016. Growth in narrow money aggregate M1 was a bit more rapid at +3.66% y-o-y. CBUAE followed accommodating monetary policy in light of the reduced inflation rate. The central bank will follow the dollar peg.

Source: CBUAE

3.7%

-5%

0%

5%

10%

15%

20%

25%

30%

Oct-10 Oct-11 Oct-12 Oct-13 Oct-14 Oct-15 Oct-16

M1 %change y-o-y M2 %change y-o-y

M3 %change y-o-y

1818

5Y CDS Spread - Selected Entities (basis points)

AD Govt CDS was at 66 basis points by the end November 2016, down six basis points from the beginning of this year. The CDS touched as highas 147bps on January 20 of 2016, when oil prices collapsed to record low. Since then the CDS spread for Abu Dhabi Govt has almost halved. Theall time low for AD CDS was 42.5 basis points at the end of May 2014. Dubai Gov. CDS has declined some 169bps from the highs of 2016 to 155by end of November 2016. CDS spreads fell in last few weeks due to increase in oil prices and the robust performance of the non-oil sector. ADcurrently has AA rating and very low Debt-GDP ratio.

0

100

200

300

400

500

600

700

800

Nov-07 Nov-08 Nov-09 Nov-10 Nov-11 Nov-12 Nov-13 Nov-14 Nov-15 Nov-16

Abu Dhabi Government

Dubai Government

NBAD

Emirates NBD

Societe General

BNP

Bank of America

Source: Bloomberg

1919

Selected Interbank Rates

Local currency interbank rates have historically been close to US$ rates given the context of the exchange rate peg, but these diverged in 2009.Improvement in liquidity and scrutiny by the Central Bank is resulting in gradual convergence. LIBOR and EIBOR have almost diverged to samelevels. EIBOR had upward trajectory starting from the second half of 2015. UAE CB raised interest rates of certificates of deposits in line with FEDdecision. UAE maintains its safe-haven status and the currency is pegged to the US$, the Eibor, will probably continue to provide cheap funding.

Source: Bloomberg

1.41

0.94

-0.31

-1.0

-0.5

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

5.0

5.5

6.0

6.5

7.0

Nov-00 Nov-02 Nov-04 Nov-06 Nov-08 Nov-10 Nov-12 Nov-14 Nov-16

3M AED Interbank Rate

3M USD LIBOR

3M Euribor

2020

Selected Sovereign Yields

As per the US GDP data released at the end of 2016Q3, growth was higher than expectations. The latest statements by FOMC are an indicationthat inflation is moving closer to long-run objective of the FED. ECB and FED are diverging in policy directions (Easing & Tightening) which israising market uncertainty. With the recent data indicating weak growth and low inflation ECB is focusing on medium term targets and startedbond purchase program. Sovereign yields are expected to increase due to fiscal deterioration as a result of declining oil revenues.

Source: Bloomberg

-1.0

-0.5

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

5.0

5.5

6.0

6.5

7.0

7.5

8.0

8.5

9.0

Nov-00 Nov-02 Nov-04 Nov-06 Nov-08 Nov-10 Nov-12 Nov-14 Nov-16

10Y UST

10Y Bund

2Y UST

ADGB2019

DUGB2020

2121

UAE Central Bank FX Reserves (AED Billion)

In October 2016, CB FX assets were at AED 295.1 billion, up 3.36% y-o-y, but down from AED 341.1 billion in December 2015. Cash, bankbalances and deposits with banks abroad dropped the most.

Source: CBUAE

29

53

.36

%

-40%

-20%

0%

20%

40%

60%

80%

100

120

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160

180

200

220

240

260

280

300

320

340

360

Oct-16Apr-16Oct-15Apr-15Oct-14Apr-14Oct-13Apr-13Oct-12Apr-12Oct-11

CB FX Assets % change y-o-y (RHS)

`

2222

Government & Public Sector Deposits (AED Billion)

Latest available Central Bank data showed that in October 2016 Government and Public Sector deposits decreased to AED 320bn, down 5% y-o-y. In October 2016, government deposits decreased to AED 158bn. Oil price for YTD 2016 has averaged around US$45. The oil sector is estimatedto constitute 50% of government revenues, thus the drop in oil prices forcing GCC nations to use their reserves. Considering potential increasesin supply of oil not being matched by demand, we may have an extended period of low oil prices so tight liquidity in banking sector is expectedto continue.

Source: CBUAE

31

9-4

.7%

-20%

-10%

0%

10%

20%

30%

40%

50%

100

120

140

160

180

200

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240

260

280

300

320

340

360

380

400

420

Oct-16Feb-16Jun-15Oct-14Feb-14Jun-13Oct-12Feb-12Jun-11Oct-10Feb-10

Residents - Govt + Public Sector Deposits

% change y-o-y (RHS)

`

2323

12M Rolling Sum Listed Bank Profits (AED Billion)

In 2016Q3, 12M rolling sum listed bank profits declined to US$ 9.63 billion (-7% y-o-y). Banking system stability indicators have been improvingin recent years. Banking sector is by far the most profitable sector.

Source: CBUAE

35

-7.0

%

-40%

-30%

-20%

-10%

0%

10%

20%

30%

40%

50%

60%

10

12

14

16

18

20

22

24

26

28

30

32

34

36

38

40

2016Q32015Q113Q312Q110Q309Q1

Listed Banks Profit % change y-o-y (LHS)

2424

Alp EkeSenior Economist

Rakesh SahuAnalyst

Market Insights & Strategy

Global Markets

National Bank of Abu Dhabi

Tel: +971 2 6110 127

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