UAE-based Mashreqbank has reported a 48 per cent fall in first quarter profit to AED251m ($68.33m), hurt by provisions against bad loans and lower customer deposits.
Dubai’s second largest lender by market value set aside AED484m in provisions for impairments during the first three months of 2010.
In March, Fitch Ratings downgraded Mashreq’s individual rating to C/D from C, while keeping it on rating watch negative, indicating that there is a heightened probability of a potential downgrade.
The downgrade reflects Fitch’s concerns on the bank’s deteriorating asset quality owing to its substantial exposures to the troubled Saudi groups, Saad and Al-Gosaibi, which are now impaired, as well as large volumes of retail defaults in the UAE during the year and its sizable exposure to Dubai World.
UAE banks are heavily exposed to state-owned holding company Dubai World, which is currently in talks to restructure $24.8bn in debt. Ratings agencies estimate the potential exposure ranges up to $15bn, the majority of which is believed to be held by Dubai banks.
Commenting on the first quarter results, Abdulaziz Al-Ghurair, chief executive officer of Mashreq said “2009 was a real test for the UAE banking industry as the extent of the global economic situation continued to be revealed”.
Customer deposits declined by 12 per cent to AED47.4bn compared to AED53.7bn in the fourth quarter of 2009.
Loans posted a 4.4 per cent decline during the same period to AED45.6bn from Dh47.7bn.
Total assets for the first quarter of 2010 stood at AED88.6bn.