Emirates NBD set for gains after provisions

A new year is bringing optimism for Emirates NBD which is preparing for its profits to increase almost fivefold.

With major provisioning largely behind it, Emirates NBD could increase its profit almost fivefold for the fourth quarter of last year compared with the fourth quarter of 2009, a banking analyst estimates.

Shares in the emirate's largest bank by assets rose by more than 4 per cent to Dh2.80 yesterday on the Dubai Financial Market.

Like many other regional banks, Emirates NBD had significant exposure to Dubai World and was forced to make substantial provisions in the past few quarters. All told, it would have made provisions of more than Dh3 billion (US$820 million) for last year, but the fourth-quarter figure should be only about Dh150m, said Naveed Ahmed, a financial analyst at Global Investment House in Kuwait.

The UAE Central Bank last week instructed banks to increase to 80 per cent their provisioning for exposure to the Saudi conglomerates Saad Group and Ahmad Hamad Al Gosaibi & Brothers.

But analysts said the directive would probably have a limited effect on Emirates NBD because it had already aggressively set aside funds for its Saad and Al Gosaibi exposure.

Emirates NBD is "probably better than other banks", Mr Ahmed said. "The story that the worst is over fits this bank better than other banks."

Mr Ahmed estimates the bank would have earned Dh832m in the fourth quarter, up sharply over a profit of Dh181.6m in the fourth quarter of 2009, when it set aside provisions of almost Dh900m.

"It's not an increase in core earnings but rather a decrease in provisioning," Mr Ahmed said.

From a trading perspective, Emirates NBD is relatively illiquid, with fewer than 1 million shares changing hands most days.

For that reason, the stock is likely to gain interest from local high-net-worth individuals and retail investors rather than from foreign institutions that would be more likely to pick up large blocks of shares. This could limit the stock's potential to rise.

In the original version of this story, we incorrectly said Emirates NBD would have made provisions of more than US$3bn for last year, and will make provisions of $150m in the fourth quarter of 2010. These figures should have been in dirhams, not US dollars. The story has now been corrected.