HC Securities, or Brokerage, has released a large report about 8 UAE banks, with the most upside for ENBD and UNB, while ADIB has some downside and CBD is almost no upside. Summary below, or see full report (download, pdf, 102 pages). Banks reviewed are (I assume NIM refers to Net Interest Margin):
Abu Dhabi Commerical Bank (ADCB) - concerns about real estate exposure, asset quality, investment exposure.
Abu Dhabi Islamic Bank (ADIB) - concerns about asset quality, disclosures, high level of retail banking
Commercial Bank of Dubai (CBD) - concerns about size (small), high investment exposure, Dubai exposure, but strong NIMs and low property exposure.
Dubai Islamic Bank (DIB) - concerns about high property market exposure, Dubai market exposure, asset quality and operating margins, but low investment exposure and strong Islamic banking market share.
Emirates NBD (ENBD) (EMIRATESNBD) - concerns about Dubai market exposure and utilisation rates but strengths include largest martet share, good quality of assets, and diversified revenue stream (both Islamic and conventional).
First Gulf Bank (FGB) - concerns about high investment and real estate exposure, but strong NIMs and high capitalization.
National Bank of Abu Dhabi (NBAD) - concerns about investment exposure but strengths include high capitalisation, large asset base, good debt servicing ability and asset quality, strong international presence.
Union National Bank (UNB) - concerns about high investment exposure and small size, but strengths include low real estate exposure, good asset quality and cost efficiencies.
With utilization rates already high, liquidity shortage remains our biggest concern for the sector. This, coupled with correction in real estate prices and a capital market crash, dictates our bearish sentiment on the UAE banking sector for the short term.
We believe that the government initiative offering AED120 billion for UAE banks will provide a short term liquidity relief that would ensure banks meet their current funding requirements.
We favor players that have the potential to overcome these key concerns. Accordingly, we initiate coverage on the sector with a "BUY" recommendation on NBAD, ENBD and UNB, a "HOLD" for ADCB, DIB, CBD and FGB, and a "SELL" for ADIB.
The highly leveraged UAE banking sector couldnt escape of the global financial crisis, with utilization rates reaching as high as 113% for the aggregate sector. High AEIBOR dried up Interbank market while the capital market crash locked up capital raisings through international markets. As such, liquidity shortage is the sector's biggest challenge, affecting both loan growth rates that would be capped at 9% during 2009 and margins that are set to be further squeezed. Next comes real estate exposure which came in at an average 26% of loan portfolio, seriously threatening asset quality and fueling a new cycle of NPLs. Market turmoil would demand building higher provisions and affecting equity through write offs for AFS. Together, NPL and investment provisions could eat up as much as 60% of banks' operating income as is the case with ADCB, with the sector average coming in at 32.5%.
We do believe that the AED120 billion rescue plan by the government will offer a short term liquidity relief for the UAE banks, and provide a boost to capital adequacy ratios in case banks choose to book part of it as tier II capital. We note that the facility offered represents 12% of the UAE's GDP - significantly higher than regional packages that came in at 3% of GDP. This reflects the government's strong support for this sector and signals possible further injection if needed. Banks are poised to slow down significantly on their asset growth, considerably trimming down their utilization rates and getting rid of their toxic assets through provisions. Therefore, 2009 results are likely to place it as a bottom year for the sector before its starts showing recovery.
We initiate coverage on the UAE banking sector with a "BUY" recommendation on NBAD, ENBD and UNB, a "HOLD" for ADCB, DIB, CBD and FGB, and a "SELL" for ADIB. Our selection criteria depends on a bank's ability to overcome current concerns given its size, government backing and the diversification of its revenue stream. Our weighted average target price is based on a 70% "DCF" and a 30% "Relative valuation" to gauge the impact of a fall in banking stocks world wide. For our DCF, we based our valuation on an excess return model using a risk free rate of 4.5%, a market risk premium of 6.5% for Abu Dhabi players and 7.5% for our Dubai ones due to the greater challenges they face in refinancing their debt. We used a perpetual growth rate of 2% given the downward revision of GDP growth within the UAE.
A good retail bank is bound to benefit from general economic growth eventually.
Given that half the bank is owned by Al-Nahyan entities the default risk is zero..tempting but I am still sitting on my FGB shares so letīs not get greedy. _________________ Nakheel bonds SOLD at a lovely lovely profit...My current holdings right now FGB, Deutsche Bank, Credit Suisse, Barclays and Aldar.
It's true that it's their assessment . How realistic it is is another question entirely. Here are some examples of other Union National Bank (UNB) reports from clever analysts who know more than us ... in other words, how do we really know how reliable any fair value, or target price, is? They surely aren't worthless otherwise you'd think nobody would take any notice of them. But they certainly look wrong or misleading if current fair values are only a fraction of what they were 12 months ago (well, we know why ... there was that matter of frozen credit and a crash in property values). UNB share price closed at AED 2.09 on Thursday.
As always with any Abu Dhabi institution you must dig until you reach the level where you find the Al-Nahyans.
As the internal dynamics within the family shifts the position and financial prospects of any bank it adds another level to the game of simply trying to outguess the market.
With UNB itīs rather easy as we find that Sheikh Nahayan bin Mubarak Al-Nahyan is Chairman of the Abu Dhabi Group, Union National Bank, and United Bank Limited. His Highness is also Founder Chairman of Bank Alfalah Limited.
We can also see that the Abu Dhabi government controls 50.1% of the shares directly while Dubai government actually owns 10%..which is a bit odd.
A conventional market would regard UNB as a prime takeover target but we all know that it ainīt possible.
UNB is basically a bank for a group of "Bani Mohammad bin Khalifa" within the Al-Nahyan clan, in much the same way that the "Bani Fatima" created FGB to be their bank of convenience.
This group of UNB "customers" also known as the Abu Dhabi Group have invested heavily in Pakistan which is a bit worrying but on the other hand they ought to know the market given the connections between UAE and Pakistan.
A look at the interests this "Abu Dhabi Group" got is rather revealing..
Bank Alfalah Limited, Pakistan
United Bank Limited, Pakistan
Alfalah Securities (Pvt) Limited
Alfalah GHP Investment Management Ltd, Pakistan
Alfalah Insurance Company Limited, Pakistan
UBL Insurers Company Limited, Pakistan
Taavun (Pvt) Limited, Pakistan
Rasis Developers LLC, UAE
Iran Saden Industries, Iran
Arvato Middle East Sales (AMES)
Zerneb Pharmaceuticals, Uganda (Under formation)
Toom Bank Limited, Uganda (Under formation)
Warid Telecom International LLC, UAE
Warid Telecom (Pvt) Limited, Pakistan
Wateen Telecom (Pvt) Limited, Pakistan
Warid Telecom International Limited, Bangladesh
Warid Telecom Uganda Limited, Uganda
Warid Congo SA, Republic of Congo _________________ Nakheel bonds SOLD at a lovely lovely profit...My current holdings right now FGB, Deutsche Bank, Credit Suisse, Barclays and Aldar.
Bimcnorth,
what exactly do you mean by "Bani"? Are you referring to a tribe alike, or a family, or something else?
"Bani Fatima" ... I suppose you are referring to HH Sheikha Fatima Bint Mubarak. However, she is originating from Al Ketbi family, but is not forming separate tribe or family or whatever. Women in the Gulf remain "property" of their own families - brothers and father - in case of divorce or when they become widows. They don't adopt the family name of their husbands when they get married, as in the West, neither establish a sort of matriarchy with their sons. Even up to date the brothers of Sheikha Fatima - from Al Ketbi family - are managing her estate and investments, but not her sons. Note: this is so from the early sixties when she got married at young age and her brothers moved into the fort/palace's quarters in Al Ain to be close to her and their mother and look after them.
Regarding the investments in Pakistan: Pakistan is expected to achieve higher GDP than UAE - about 3% in 2009. The potentials are huge.
As for Congo and the other African countries: difficult and risky oil explorations are being financed there, even from ADIA.
According the latest shift in research interests, the trends in foreign investments for the high profile investment groups and funds of Abu Dhabi as destination is China, along with the other emerging markets; while as field - energy and mining top the list.
Regarding the banks, bellow is slightly older data, but in percentage the situation is pretty very much the same. The national banks of Abu Dhabi are and will always be heavily supported; ENBD to utilize Tier 2 facility.
Business Weekly 18 August 2008:
Six banks control 60 pc of assets in UAE
By Amit Chettupuzha
Emirates NBD alone holds 20pc
Six large banks in the UAE control close to 60 per cent of the total assets held by the country's banking sector which has more than 50 banks, the analysis of the financials show.
While the total assets of the banking system in the UAE is Dh1.337 trillion as of March end this year, banks such as Emirates
NBD, National Bank of Abu Dhabi (NBAD), ADCB, Mashreq, Dubai Islamic Bank (DIB) and First Gulf Bank (FGB) together hold Dh801.946 billion worth of assets.
The largest bank in the country, Emirates NBD, the bank created through the merger of Emirates Bank and National Bank of Dubai (NBD) alone controls Dh277.464 billion worth of assets which is more than one-fifth of the total assets held by the UAE banks.
Logic of merger
While NBAD holds Dh157.231 billion worth of assets (11.75 per cent), that held by ADCB are to the tune of Dh113.99 billion. Mashreq, FGB and DIB hold assets to the tune of Dh83.367 billion, Dh84.810 billion and Dh85.083 billion respectively as of March 31, 2008.
"The concentration of assets points to the fact that it makes better sense for the medium to small banks to merge and become larger in order to stay in the market which is controlled by a few big banks," said a an analyst in Dubai.
The analysis also proves that the larger banks enjoy a better equity multiplier ratio or leverage index as they have been able to leverage their capital more effectively than many other medium to small banks.
While Emirates NBD has leveraged its equity of Dh24.680 billion 11.24 times to take its asset base to Dh277.464 billion, NBAD's leverage index is 12.07 as of March 31, 2008 and ADCB's is 9.68.
On the other hand, Mashreq, FGB and DIB have leverage indexes of 7.77, 8.07 and 8.96 respectively.
Earlier, Emirates NBD had said that it was aiming to achieve a market share of about 25 per cent in UAE's banking business. Though there were reports of merger talks being held among other large banks immediately after the merger announcement of EBI and NBD, they had faded out in due course of time.
"Bani Fatima" ... I suppose you are referring to HH Sheikha Fatima Bint Mubarak. However, she ...
Her six sons with the late Sheikh Zayed are the "Bani Fatima" fraction within the Al-Nahyan family yes.
They are rather close knit and given that they are headed by the crown prince Shk. Mo bin Zayed who heads the Abu Dhabi executive council they got enormous clout and they all have posts in a sort of 'command and control' structure
The "Bani Mohammad bin Khalifa" is the fraction that was most powerful under the late emir and is sometimes referred to as the "Khalifa group" nowadays.
For example youīll see that Shk. Mo bin Zayed as deputy supreme commander relies heavily on members of the Al-Ketbi clan within the tribal network when it comes to high military posts. _________________ Nakheel bonds SOLD at a lovely lovely profit...My current holdings right now FGB, Deutsche Bank, Credit Suisse, Barclays and Aldar.
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. How realistic it is is another question entirely. Here are some examples of other Union National Bank (
