* Most Gulf banks' profits hurt by impairment charges
* Repayment deferral schemes mask scale of bad loans
* More pressure on banks' provisioning seen in H2 - analysts
DUBAI, July 28 (Reuters) - Most Gulf banks' profits plunged
in the second quarter after a spike in impairment charges for
expected credit losses, as regional economies reel from the
double blow of low oil prices and the coronavirus outbreak.
But the banks may need to set aside even more money in the
second half of the year to cover bad loans, as their full impact
on banks has so far been curbed by stimulus measures allowing
debt repayment delays, analysts say.
"Given that we have payment holidays, the current asset
quality metrics as measured by the non-performing loans, still
does not fully reflect the true size of these non-performing
loans," said Ashraf Madani, a senior analyst at Moody's.
"Hence we expect further pressure on provisioning charge
once those NPLs (non-performing loans) get reflected in the
financial position of banks and as they move to stage 3."
Stage 3 loans are NPLs that require significant writedowns.
Saudi Arabia's largest lender, National Commercial Bank
, saw its quarterly profit drop by 22.3% year on year
to 2.1 billion riyals ($559.97 million) due to a decline in
operating income and higher operating expenses.
"Total operating expenses including impairments were higher
by 18.4% mainly due to higher net impairment charge for expected
credit losses," the bank said in a bourse filing this week.
Emirates NBD, Dubai's largest bank, last week
announced a 58% fall in second-quarter profit. It set aside over
$1.1 billion so far this year to cover bad loans.
First Abu Dhabi Bank, the UAE' biggest lender,
reported a 25% fall in profit on Tuesday, dragged down by
another quarter of higher impairment charges.
Malik Zahir, chief investment officer for equity asset
management at Bahrain-based SICO, said that compared to the
first quarter, the increase in provisions among Gulf banks was
not significant but that they will likely rise in the second
half of the year.
"Almost all regulators have instructed the banks to defer
loan instalments of clients exposed to the lockdown by circa six
months, this has limited the growth in delinquency."
"In the case of the UAE, companies' layoffs have just
started to gather pace, so we would see the delinquencies
emanating from this probably in the third quarter," he said.
In Qatar, profits dropped sharply in the second quarter for
Qatar National Bank, the Gulf's largest lender, which increased
loan loss provisions to 1.5 billion riyals from 605.5 million a
Qatari banks' profits and asset quality are likely to weaken
this year, Fitch Ratings said this week, but the true impact
will be masked in the short term by loan deferral schemes and
regulatory flexibility for banks to recognise impairments under
IFRS9 - an accounting rule introduced after the global financial
Dubai-based Arqaam Capital said on Tuesday that it expected
total dividends per share and dividend pay-out ratios "to be cut
substantially or fully cancelled" this year for most Gulf
(Editing by Emelia Sithole-Matarise)