First Abu Dhabi Bank Sees Interest-rate Jump Boosting Its Profit

First Abu Dhabi Bank expects a rise in US interest rates to boost its profits because the United Arab Emirates is likely to follow suit.

The UAE’s biggest bank sees profit climbing by between 200 million dirhams ($54 million) and 250 million dirhams for every percentage-point hike in US interest rates, Mahmood Al Aradi, head of the firm’s global-markets business, said in a Bloomberg Television interview to be aired Tuesday.

FAB, as the bank is known, holds 28 percent of its liabilities in current-account and savings-account deposits which are interest-free, and therefore “higher interest rates mean higher income to the bottom line,” he said.

Traders are betting on the US Federal Reserve raising rates twice by the middle of the year as inflation accelerates.

Since the UAE dirham is exchanged with the dollar at a fixed rate, interest-rate changes in the world’s largest economy tend to be followed by the Middle Eastern nation.

Beating forecasts

FAB last month reported a 3.5 percent decline in full-year profit, though the results were ahead of analysts’ forecasts. The bank declared a dividend of 0.7 dirham a share, distributing 7.6 billion dirhams to shareholders.

The lender may maintain the 70 percent dividend rate for 2018, Andre Sayegh, the bank’s deputy chief executive officer, said in the same interview.

While FAB received a license to set up an investment-banking unit in Saudi Arabia this month, it already has exposure to the country, Sayegh said. Lending to the country will now become “a multiple of what we have today,” he said.

Read more about the race to gain a Saudi foothold

FAB Investment KSA, as the unit is known, joins banks such as Citigroup Inc. and Mitsubishi UFJ Financial Group Inc. opening or expanding their foothold in Saudi Arabia. The nation is overhauling its economy and plans to list Saudi Arabian Oil Co., or Aramco, in what could be the largest initial public offering in history.