DUBAI, April 29 (Reuters) - Al Baraka Banking Group increased provisions by 10-12% in the first quarter to deal with any fallout from the coronavirus as it notched up a double-digit increase in net profit, its chief executive said on Wednesday.
The Bahraini Islamic lender with operations in more than a dozen countries, has not publicly disclosed its first-quarter results in line with a directive from the Central Bank of Bahrain, as the new coronavirus pandemic and tumbling oil prices have mounted pressure on Bahrain’s economy.
“These provisions were taken as a precaution,” Adnan Ahmed Yousif told Reuters, adding, “it reflects the economy. Once the factories stop, you anticipate that something will happen.”
Other banks in the region, including Dubai’s largest bank Emirates NBD, have also increased their provisions in anticipation of the coronavirus outbreak’s impact on the credit market.
Yousif, who is also the chairman of the Bahrain Association of Banks, declined to give further details about Al Baraka’s provisions and profit.
He said that some Bahraini banks were limiting lending to sectors including construction, oil, services and retail, but that his bank was not.
He expected Gulf banks to see an 8-9% increase in non-performing loans (NPLs) in 2020. He said he did not expect to see a large rise in NPLs at Al Baraka, in part because all its non-Bahrain operations are outside the Gulf and due to pre-emptive provisioning.
There have so far been 52,904 cases of COVID-19, the disease caused by the new coronavirus, reported in the six Gulf Arab states and 293 deaths.
Gulf countries have imposed strict measures, including curfews, shutting businesses and halting travel, that are expected to sharply impact their economies.
Yousif said Gulf NPLs would rise because the sharp slowdown due to the lockdowns would “automatically affect companies’ ability to repay their debts.”
He said around 35-40% of Al Baraka’s deposits are liquid, which he said was “very high”.
“You have advantages and disadvantages, because the disadvantage is that you are keeping certain amounts with a very low return just to make sure it protects you in the bad days,” he said.
He said around 40% of Al Baraka’s lending was corporate and 60% was split between retail customers and small enterprises. (Reporting by Yousef Saba;Editing by Elaine Hardcastle)