Emirates NBD, Dubai's biggest lender by assets, reported a 22 per cent rise in second-quarter net income as impairments for bad loans dropped amid the economic recovery from the Covid-19 pandemic.
Net profit attributable to equity holders of the group for the three months to the end of June climbed to Dh2.46 billion ($670 million), the lender said in a statement to the Dubai Financial Market, where its shares are traded. The results beat a Dh2.2bn net profit estimate by Arqaam Capital and a Dh2bn EFG Hermes forecast.
Impairments for credit losses for the period declined by 48 per cent to Dh851m. Allowances for bad loans were 52 per cent lower quarter-on-quarter on improving economic conditions, the bank said.
The rise in profitability reflects the bank's "financial resiliency and the success of its diversified business model", as business sentiment continues to improve, said Hesham Abdulla Al Qassim, vice chairman and managing director of Emirates NBD.
As with their global peers, banks in the UAE faced tougher operating conditions last year as the Covid-19 pandemic disrupted economic momentum. However, the country's economy is recovering on the back of monetary and fiscal support and an ongoing mass inoculation programme.
The UAE Central Bank expects the country's gross domestic product to expand by 2.4 per cent this year. The government has so far introduced support measures worth Dh388bn after the pandemic tipped the global economy into its worst recession since the 1930s.
As part of its support measures, the Central Bank also introduced a Dh50bn Targeted Economic Support Scheme to boost liquidity in the banking and financial sector.
Emirates NBD said the speed of the UAE’s vaccination programme has allowed the Arab world's second-largest economy to remain open, even as other countries have struggled to contain the spread of the virus, and it expects "the recovery in the non-oil sector to gain momentum in the second half of 2021".
It expects the UAE's non-oil economy to grow by 3.5 per cent this year.
The group’s net profit for the first six months of 2021 jumped 17 per cent, compared with a year ago, to Dh4.78bn. It was 66 per cent higher over the preceding half-year period, aided by a 9 per cent increase in total income for the period.
Expenses declined by 6 per cent on annual basis to Dh3.8bn on cost-management measures while the bank's impairment allowances for the first six months of the year dropped 38 per cent to Dh2.61bn. The cost of risk substantially improved to 114 basis points, the lowest since 2019.
The bank said its half-yearly net interest margin remained stable at 2.45 per cent as its customer loans reached Dh438bn, with the second-quarter being a record period for growth in personal loans, credit cards and mortgages.
"The impact of lower interest rates was more than offset by firm cost management and a significant improvement in the cost of risk to pre-pandemic levels," said Shayne Nelson, group chief executive of Emirates NBD.
Liquidity remains strong, with the liquidity coverage ratio at 158.8 per cent and the advances-to-deposits ratio at 95.7 per cent. During the first half, the group raised Dh20.3bn in senior term funding, "more than fully covering this year’s term debt maturities", it said.
Assets at the end of the end of the first half remained flat at Dh693.8bn as both loans and deposits fell by 1 per cent each during the period.
DenizBank’s, which Emirates NBD bought from Russia's Sberbank in 2019, contributed Dh3.31bn, accounting for 29 per cent of group income.
Emirates NBD is bullish about growth in the Turkish economy, which expanded in 2020 despite pandemic headwinds. However, inflation uncertainty continues to weigh on the lira.
The bank is also upbeat about Saudi Arabia's economy, with the non-oil sector expected to grow by 4 per cent this year.
Emirates NBD's digital bank Liv has grown to 75,000 customers in the kingdom and the lender has expanded its branch network in the Arab world's largest economy to seven, with the opening of a third branch in the capital Riyadh.