Emirates NBD PJSC (EMIRATES), the United Arab Emirates’s biggest bank by assets, reported a 13 percent decline in second-quarter profit as price competition and lower rates drove down interest income on loans and costs increased.
Net income fell to 647.5 million dirhams ($176 million), or 10 fils a share, from 744.5 million dirhams, or 12 fils a year earlier, the lender said in a statement today. Net interest income fell 5 percent to 1.64 billion dirhams, while impairment provisions fell 3 percent to 954 million dirhams.
The bank’s net interest margin was also hurt as it offered greater yields to sell new debt. Banks in the second-largest Arab economy are recovering from a slowdown in lending triggered by the global financial crisis, which hurt investment banking and led to an increase in bad loans as property prices crashed.
“Lackluster top-line performance” was “the major reason behind the weakened net income,” Naveed Ahmed, an analyst at Kuwait’s Global Investment House, said by e-mail. “Net interest income remained bogged down by dropping yields, building pressure on net interest margin, the effects of which were partially offset by improvement in loan volume.”
Net income topped the 613 million-dirham median estimate of four analysts surveyed by Bloomberg.
Emirates NBD, 56 percent owned by Dubai’s government, is one of the biggest lenders to investment company Dubai Group LLC, which is in talks to reschedule $6 billion of loans.
The shares fell 3 percent to 2.62 dirhams at the close in Dubai today. They have dropped 11 percent this year, while the Bloomberg GCC 200 Financial Index (BGCCFINL) is little changed.
Operating expenses in the quarter rose 8 percent from a year ago to 894 million dirhams, while non-interest income climbed 2 percent to 860 million dirhams.
Net interest margin, the difference between what the bank earns from assets and what it pays out on deposits and liabilities, fell to 2.28 percent in the second-quarter from 2.63 percent in the preceding three months.
Emirates NBD maintained its net interest margin guidance for the year of about 2.5 percent “with minor downside risk,” as retail deposits grow at a “healthy pace,” Chief Financial Officer Surya Subramanian said in a conference call with reporters today. The bank has met its fund-raising target for the year of about $2.5 billion and “future issuances will be guided by” needs given that the bank can meet liquidity requirements, he said.
Lending increased 2 percent to 208.2 billion dirhams in June compared to December, while deposits rose 8 percent to 208.4 billion dirhams. Emirates NBD has raised 8.8 billion dirhams so far from medium-term debt this year, it said.
The bank’s impaired-loan ratio rose to 14.3 percent in the second quarter from 14.1 percent at the end of the first. Emirates NBD expects that ratio to be between 14 percent and 15 percent this year and reach as high as 16 percent in 2013.
“The external environment remains challenging and the bank maintains its cautious outlook,” Emirates NBD said in its statement.
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