Bad loans cloud the outlook for NBAD

NBAD's pessimistic outlook put a dampener on the lender's shares and analysts' outlook for the bank

National Bank of Abu Dhabi's pessimistic outlook does not instil the greatest confidence in the lender's share price.

The bank, which is the second-largest in the UAE in terms of assets, has increased its forecast for the number of non-performing loans (NPLs) it expects this year, throwing off some analysts' expectations.

"We had assumed NPLs would flatten out from mid-2011 but this has now been negatively revised to increases throughout 2011," said Raj Madha, a banking analyst at Rasmala Investment Bank. "Management is cautious in what they believe they can achieve."

National Bank of Abu Dhabi (NBAD) said it was planning for an additional Dh1 billion of provisioning this year, which has a Dh250 million negative effect on the bottom line.

Mr Radha reduced his view to "hold" from "buy", and lowered the target price to Dh11.11 from Dh13.20.

NPLs of Dh3.77bn make up 2.56 per cent of the lender's total loan book. As a result, Rasmala has also reduced its reported net profit forecasts for this year and next by 12 and 10 per cent, respectively.

But Mr Madha said the bank's forecasts for rising provisions and NPLs, which are loans in default or close to defaulting, may turn out to be overly cautious.

Yesterday the bank's shares shed 0.9 per cent of their value to close at Dh11.30.

Last week, the lender revealed a 10 per cent decline in first-quarter profit this year compared with the same period last year, due to an increase in provisions against bad loans.

It also reported a 4.7 per cent rise in the value of its loans for the same period.

NBAD, which was originally set up to serve as the primary banker to the Abu Dhabi and federal governments, is also facing a possible dent in its balance sheet from exposure to Al Jaber Group.

It is chairing a co-ordinating committee of lenders to negotiate the rescheduling of the family-owned contracting conglomerate's debt.