Emirates NBD falls after report on loan coverage

Markets Update: Emirates NBD sinks to its lowest close in a week after a cut in target price at Goldman Sachs.

Emirates NBD fell to its lowest in a week after Goldman Sachs said the UAE's biggest bank by assets would need to set aside as much as Dh8 billion to cover bad loans during the next two years.

In a report, Goldman analysts said Emirates NBD would require Dh6bn to Dh8bn between the fourth quarter of this year and the end of 2013.

The bank's revenue for all of last year totalled Dh10.4bn.

The bank's shares fell 1.5 per cent to Dh3.25 yesterday, the biggest decline on the Dubai Financial Market General Index. "We have revised our estimates to incorporate higher provisioning for Emirates NBD, given the management's guidance toward weaker asset quality," analysts from Goldman Sachs said, lowering their target price on the stock to Dh4.38 from Dh4.79.

The stock still has room to rise despite Goldman's lower valuation, analysts said.

"This news should be positive for one reason - the closing price is Dh3.25," said Talal Touqan, the head of research at Al Ramz Securities.

"It's still way below the fair value," he said. "People are only focused on the part saying that provisions will increase."

However, a report from Fitch Ratings may be giving investors good reason to do so.

"The significant increase in the renegotiated private-sector loans hides the true extent of the banks' asset quality problems," the agency said.

"Whilst fundamental credit issues in the operating environment remain unresolved, some of these loans may re-emerge as non-performing loans."

Emirates NBD booked Dh1.5bn of impairment losses on financial assets in the third quarter, and the bank said it had now fully provided for bad debts from Dubai World and Dubai Holding.

The bank, which plans to launch a sukuk, is expected to detail its acquisition of Dubai Bank when it next releases earnings.