More pain ahead for Emirates NBD as bad debts continue to increase

The bank's management ought to be pleased that the stock remained unchanged with an increasing volume of bad debts that may continue to drag on earnings.

With its profits from the previous year falling by 59.7 per cent, the management of Emirates NBD ought to be pleased that the stock remained unchanged yesterday as the bank's increasing volume of bad debts may continue to drag on earnings.

The lender's ratio of non-performing loans is expected to increase to 4.5 per cent in the next six to eight months, according to Rick Pudner, the bank's chief executive. That couldspell trouble for shareholders who are desperate for some good news to help the stock out of the doldrums. Yesterday's bright spots, such as the company's desire to put all of its Dubai World cards on the table and start afresh in the fourth quarter, were overwhelmed by uncertainty over bad debts.

Investors' expectations of more bad news about Dubai World meant the stock was little changed at Dh3 per share, with low levels of activity throughout the day, in spite of the fact that it had set aside Dh1.24 billion this quarter to cope with bad debts, including the fallout from the Dubai World restructuring.

"Nothing changed," said Marwan Shurrab, a fund manager at Gulfmena Alternative Investments. "Stability was seen on the stock after earnings were announced … investors had priced in such a risk and were comfortable with it."

Jaap Meijer, senior analyst at Alembic HC Securities, said: "Loan quality continues to be a problem but shareholders are already well ahead of the curve here." Volumes of the stock were languid, with only 355,400 shares traded compared with an average of about 400,000. But Mr Shurrab said banks with exposure to Dubai World had seen strong rallies after local investors' initial panic now that the developer's debt issues were starting to be resolved.

"We'll be seeing strong performance in Abu Dhabi banks and especially those with high exposure to Dubai World and Nakheel," Mr Shurrab said. "That's been the case throughout the third quarter, with strong inflows on these stocks."