By Nawied Jabarkhyl Tom Arnold

DUBAI (Reuters) - Banks in the United Arab Emirates will post profit growth of around 5 percent in the second half of 2017, similar to the first six months as bad loans ease and lenders weather the Qatar crisis, the head of a local industry group said.

Of the five major banks to publish earnings this quarter, four have reported improved profits thanks to higher net interest income and lower impairments for some of them.

"If you look at the bank results that have come in so far, collectively there is a growth of five percent," said Abdulaziz al-Ghurair, Chairman of the UAE Banks Federation (UBF) and chief executive of Mashreq <MASB.DU>, Dubai's third largest lender by assets.

 

"Despite what you see all around us, if you compare it to the rest of the world, this is a fantastic result."

Lenders have been adjusting to lower oil prices since June 2014, which has moderated double-digit profits and pushed up bad loans for some lenders.

"The whole economy, the government and the banking industry has accepted the oil price will be around $50, so they have to live with that and is part of their planning process," he said in an interview.

He said banks had set aside full coverage for bad loans in the form of provisions , adding that acted as a "shock absorber" for the banking sector.

"We can handle a tough economy but we don't see it coming in," he said.

The level of business people fleeing the country with unpaid debt had improved dramatically and the level of provisions banks would take in 2017 would likely be around half the level of the previous year, said al-Ghurair.

Economic activity has improved since 2015, when low prices for oil and other commodities and a strong dollar heightened problems for some small businesses. In response, the UBF set up a panel to help struggling business people renegotiate their debt with banks.

As a result of the problems facing SMEs, banks were a lot more cautious about lending to such businesses and had raised their lending standards, he said.

Banks are also having to contend with a regional rift that involved the UAE, Saudi Arabia, Bahrain and Egypt cutting ties with Qatar on June 5, accusing it of supporting terrorism, a charge Doha denies.

The UAE Central Bank also last month ordered local banks to stop dealing with the 59 individuals and 12 entities with alleged links to Qatar, as well as applying enhanced due diligence for any accounts they hold with six Qatari banks.

He said the impact of the measures on UAE banks would be limited as the local economy was sufficiently diversified.

"There's no demand for expanding the business there [in Qatar], so our clients are waiting to see what the next step is. Everybody is cautious and expecting this will get resolved and people will go back to their business," he said.

(Reporting By Nawied Jabarkhyl and Tom Arnold; Editing by Keith Weir)

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