Bloomberg News

Emirates NBD Quarterly Net Declines 59% on Loan Provisions

October 24, 2011

(Updates with CFO comment in third paragraph.)

Oct. 24 (Bloomberg) -- Emirates NBD PJSC, the United Arab Emirates biggest bank by assets, posted a 59 percent decline in third-quarter profit today, missing analysts’ forecasts, and said it expects the fourth quarter to be similar to the third.

Net income fell to 175 million dirhams ($48 million), or 2 fils a share, from 424 million dirhams, or 6 fils, a year earlier, the government-controlled bank said in a statement to the Dubai bourse today. That fell short of the 781 million- dirham median estimate of three analysts surveyed by Bloomberg. Impairment allowance for bad loans jumped 27 percent in the quarter to 1.57 billion dirhams, according to the statement.

Emirates NBD expects revenue, bad-loan provisions and earnings in the fourth quarter to be “similar to the third,” reflecting its more conservative stance with providing for loan losses in the economic cycle, Chief Financial Officer Surya Subramanian said in a conference call with reporters today.

The U.A.E. economy, the Arab world’s second biggest, was hit by the global credit crisis, which hurt its property industry, slowed trade and led to an increase in loan defaults. Non-performing loans at U.A.E. banks are expected to peak at about 12 percent this year after rising from last year’s range of 8 percent to 10 percent, Khalid Howladar, a senior credit officer at Moody’s Investors Service, said in March.

The U.A.E. economy will expand by 4 percent this year from 3 percent in 2010, according to Standard Chartered Plc.

‘Significant Margin’

The results missed forecasts “by a significant margin because of the higher-than-expected provisions,” although the increase in interest income is “robust,” Naveed Ahmed, a senior analyst at Kuwait-based Global Investment House KSCC, said in e-mailed comments today. “We remain concerned over the bank’s asset quality and the performance of its bottom line.”

The impairment allowances reflect the full estimated impact of the debt restructurings under way at units of Dubai Holding LLC, a property and investment group that is seeking to delay payments on at least $12.5 billion of liabilities, the bank said. Without including impairment provisions, operating profit was the highest in the past four quarters, it said.

“While the outlook has become more cautious and uncertain,” the bank has strong levels of capitalization and liquidity for the future, Chief Executive Officer Rick Pudner said in the statement. The lender continues to look at possible acquisitions in the Middle East and the sovereign debt crisis in Europe may lead to attractive buyout opportunities, Pudner said on the call.

Lending Unchanged

Emirates NBD’s net interest income from lending rose 13 percent to 1.95 billion dirhams, according to the statement. Lending was unchanged in the nine months through September at 196.4 billion dirhams, while deposits dropped 8 percent.

Emirates NBD’s ratio of non-performing loans to total loans rose to 12.9 percent in the quarter from 9.3 percent it reported at the end of the second, according to the statement. The non- performing-loan ratio will rise to 13 percent to 14 percent by the end of the year and will advance by 1 percentage point annually over the next two years, Subramanian told the conference call.

Emirates NBD shares fell 4.6 percent to 3.54 dirhams at the 2 p.m. close in Dubai today, the lowest since April 7. They have risen 28 percent this year, compared with a 2.3 percent decline in the Dubai Financial Market Financial Banks Index.

--Editors: Steve Bailey, Keith Campbell

To contact the reporters on this story: Arif Sharif in Dubai at asharif2@bloomberg.net; Dana El Baltaji in Dubai at delbaltaji@bloomberg.net

To contact the editor responsible for this story: Claudia Maedler at cmaedler@bloomberg.net


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