Emirates NBD profit up 21% but bank fails to beat expectations

Emirates NBD’s third-quarter net profit climbed 21 per cent but the Dubai bank fell short of analysts’ expectations.

Emirates NBD’s performance was curtailed by a 50 per cent jump in impairment allowances in the third quarter. Sarah Dea / The National

Emirates NBD's third-quarter net profit climbed 21 per cent, short of analysts' expectations, as the lender was forced to put aside more cover to guard against soured loans.

Net profit for Dubai’s biggest bank reached Dh775 million, up from Dh640m a year ago.

But the bank’s performance was curtailed by a 50 per cent jump in impairment allowances from Dh1.01 billion to Dh1.52bn over the period. The size of the rise in bad loan coverage took analysts by surprise. Still, the bank said it was well placed to benefit from Dubai’s improving economic outlook in the coming quarters.

Rick Pudner, the chief executive of Emirates NBD, said a 34 per cent rise in net profit in the first nine months of the year was underpinned by growth in revenue, particularly across retail and Islamic units.

“This is testament to our ability to take advantage of the improving economic backdrop in the UAE, and Dubai in particular, as well as the relentless and successful execution of our strategic agenda,” he said.

During the quarter, the bank’s net interest income rose 30 per cent year on year, aided by bigger volumes in higher yielding retail products, as well as a fall in the Emirates Interbank Offered Rate, the interest rate charged by banks in the UAE for interbank transactions. Cheaper bank borrowings, more efficient capital structure and contribution from the bank’s business in Egypt also helped.

During the quarter, the bank completed the US$500 million takeover of the Egyptian banking business of BNP Paribas, buying the remaining 4.8 per cent stake in the unit. It said the purchase represented 1.4 times the fair value of net assets.

But it was Emirates NBD’s rise in provisions during the period that concerned analysts.

“We were expecting a 58 per cent increase in profitability,” said Naveed Ahmed, the manager of research at Global Investment House, a Kuwaiti investment firm. “Provisions were higher than we expected. We were expecting them to be in the range of Dh1bn, similar to the previous quarter. We have no overall idea what will happen in 2014 [with provisions] and that is a concern for us.”

Bad loans rose from Dh34.7bn in the second quarter to Dh35.9bn in the third quarter. The ratio of bad loans to total loans rose by 0.2 per cent to 14.1 per cent during the quarter.

The bank said the rise in bad loans was mainly because of a Dh1.1bn jump in impaired loans in the Islamic corporate portfolio.

Impairment allowances reached Dh19.7bn, up from Dh18.3bn in the previous quarter.

Emirates NBD’s shares closed 0.70 per cent lower yesterday at Dh5.65.

Surya Subramanian, Emirates NBD’s chief financial officer, said the bank’s provisioning continued to be “conservative”.

“We are also on track to achieving our targeted impaired loan coverage by the end of 2013 as outlined two years ago,” he said.

Emirates NBD was one of several Dubai banks to suffer as a result of exposure to the emirate’s debt crisis of 2009-10. But a general recovery in the economy and a rebound in the property market since then has helped to repair balance sheets and improve earnings across the UAE’s banking system.

Abu Dhabi Commercial Bank, RAKBank and United Arab Bank all reported higher profits this week.

Elsewhere in the banking sector, National Bank of Fujairah (NBF) yesterday announced its net profit for the first nine months of the year rose by 31.3 per cent to Dh286.4m. Provisions against loan losses improved by 5.8 per cent from Dh123.3m in the first nine months of last year to Dh116.2m in the same period of last year.

Sir Easa Saleh Al Gurg, the deputy chairman of NBF, said: “We are pleased to highlight once again the growth momentum of the bank, as can be seen through the steady growth of its loans and advances, customer deposits, operating profit and net profit.”