The banking sector as a whole turned in good results in 1995, though the factors behind the performance of banks in each emirate vary slightly.

Abu Dhabi Three of the emirate's four banks reported increases in profit during 1995. Their combined lending fell by just over 4 per cent to AED 24,557 million ($6,680 million), reflecting a fall in the assets of National Bank of Abu Dhabi (NBAD).

Oil-related and infrastructure projects have long been a key source of business for banks in Abu Dhabi, and as some are completed others are announced. In the near future, the economy can look forward to a huge fiveyear investment programme by Abu Dhabi National Oil Company (ADNOC) including the Ruwais refinery expansion and petrochemical plant and work on upstream gas facilities. The emirate has also just announced a plan to create a free zone on the island of Saadiyat near the city of Abu Dhabi, which will focus on the trading of commodities and require up to $3,000 million in investment.

The leading bank in the emirate, NBAD, is effectively the bank of the government of Abu Dhabi and its assets rise and fall as departments deposit and withdraw money.

NBAD says this is why its return on assets is one of the lowest of the local banks. The bank is continuing to focus on cost control and updating its technology, a bank official says. 'We're beginning to see the benefits of investment in automation.' The bank has just moved into a new headquarters in Abu Dhabi.

Moody's Investors Service gave the bank a qualified thumbs-up in its rating report earlier this year, noting that past problems with bad loans had largely been resolved. 'Its heavy reliance on a mixture of government and international business, where margins tend to be fine, has inevitably reduced profitability, but a 30 per cent improvement in net profit reinforces recent encouraging trends,' Moody's said.

Strong growth in net interest income helped Abu Dhabi Commercial Bank (ADCB) to a 36 per cent rise in net income during the year to reach AED 300 million ($81.6 million).

ADCB was created from a merger of three banks in the mid-1980s. An indication of the bank's current health is that it has started paying back a loan of AED 1,200 million ($326.4 million) to the Abu Dhabi government which dated from that period.

Moody's gave ADCB a financial strength rating of E-plus, the lowest it assigned to any bank in the Gulf, while noting that the authorities would probably not allow it to fail. 'Asset quality problems, also dating back largely to the time of the merger, remain an area of concern,' Moody's said. 'ADCB is operating in a small, overbanked market and remains somewhat dependent on government directed business, where it is competing with the larger and stronger NBAD.'

The bank's chief executive Khalifa Hassan is not pleased with the assessment. 'There is no need for ratings,' he says, speaking about the banking sector as a whole. 'It doesn't make a difference whether we are rated or not. It is subjective in most cases.'

Arab Bank for Investment & Foreign Trade (ARBIFT) reported a 30 per cent rise in net profit to AED 143 million ($38.9 million), Customer deposits almost doubled to just over AED 2,000 million ($544 million). The bank's return on assets, which was one of the country's highest in 1994 at 3.6 per cent, slipped to 3.2 per cent.

The fourth institution based in Abu Dhabi, Union National Bank (UNB), is due to publish its results later in the summer for the first time since it was founded five years ago (see page 12) Dubai Last year saw an upsurge in lending by Dubai's banks. The loans and advances of the four conventional local banks based in the emirate National Bank of Dubai, Emirates Bank International (EBI), MashreqBank and Commercial Bank of Dubai (CBD) increased by a total of 42 per cent to AED 21,248 million ($5,779 million). The combined net profits of the four banks rose by an average of 25 per cent to AED 1,116 million ($304 million).

These figures do not include the Dubai branches of local banks based in other emirates or the operations of foreign banks, which are substantial. The foreign bank with the biggest local presence, British Bank of the Middle East, reported that its net profits rose 40 per cent in 1995 to AED 211 million ($57.4 million).

'Year-on-year growth seems to be continuing. The trading entities are establishing new markets overseas and existing markets are becoming more stable, especially in the Commonwealth of Independent States (the former Soviet Union),' says Charles Neil, general manager at EBI.

Commercial Bank of Dubai reported the most spectacular increase in profits during 1995 56 per cent up at AED 121.6 million ($33.1 million). Its return on assets was one of the highest in the country at 3.66 per cent.

The bank is focusing on its commercial business rather than actively building up its retail lending, a senior official says. 'We do not have a large number of accounts, but the ones we have are very active. We don't go after credit cards or personal loans in a big way.'

Sharjah The outlook for Sharjah's banks is getting brighter. The four banks based in the emirate are leaving bad debt-related problems behind and the threat of mergers has receded. Three of the banks have reported solid increases in profit though the fourth, United Arab Bank, has opted to play it safe with a large provision, which the bank says is not related to any specific exposure.

Lacking the oil reserves of Abu Dhabi or the well-developed trade of Dubai, Sharjah is promoting itself as a centre for industry and manufacturing although anecdotal evidence suggests that some contractors are still reluctant to accept work from the government.

Bankers say the 10-year settlement of the governments debts to the four banks, which was agreed in 1993, is continuing smoothly.

'The fortunes of Sharjah are improving,' says one foreign banker who has worked in the emirate. 'Sharjah has been considered the poor cousin of Dubai, but there are more opportunities now. They have a lot of good, medium-size industries.'

There is a pessimistic view which holds that in the long-term, Sharjah may lose out to Dubai which is also encouraging industry at the Jebel Ali free zone. But so far there are no signs that this parallel effort is creating any problems for Sharjah.

National Bank of Sharjah, which was spoken of in the past as a likely candidate to be taken over, can point confidently to good results for last year as evidence that it can stand alone. The bank's net profits rose 24 per cent last year to AED 27.9 million ($7.6 million), while total assets rose 20 per cent to AED 774.6 million ($210.7 million).

The bank opted not to pay a dividend, but to transfer profits to reserves instead.

'The Central Bank now has confidence that the bank can walk independently and there's no need for a merger. In general, there is no talk of one for the time being,' says Mohammed Abdulla, senior manager at the bank's main branch.

The bank's history of problems with bad debts has made it a careful lender. 'We have had a new credit policy so as not to get into old troubles. We make sure that a customer who wants a facility for industry has the experience to manage his factory,' Abdulla says. He notes that the bank's share price has risen since the start of this year evidence that the UAE's cautious investors think its performance will go on improving.

Northern Emirates The banks of the four smaller emirates turned in a mixed performance in 1995. Most did well:

National Bank of Umm al-Qaiwain reversed 1994's fall in earnings by moving out of managed funds into fixed-income securities, while National Bank of Fujairah also boosted its profits by attracting more customer deposits and boosting off-balance sheet and investment income.

National Bank of Ras al-Khaimah's profits slipped slightly in 1995, though net operating income actually rose. It reported net profits a touch lower at AED 40.7 million ($11.1 million), because of a big provision writeback, which boosted income in 1994. The other bank registered in the emirate is the UAE's smallest, Commercial Bank International. It reported a 68 per cent rise in net income to AED 15.1 million ($4.1 million). The bank, which is owned by local business interests in Ras al-Khaimah, has now cleared its balance sheet of accumulated losses.