Emirates NBD reported a surge in fourth-quarter profits yesterday as improving sentiment helped Dubai bank stocks to advance despite mounting provisions for bad loans. The country's largest lender doubled provisions last year and reported a 9 per cent decline in full-year net income to Dh3.43 billion (US$934 million) from the previous year. But fourth-quarter profit was Dh178m, up from Dh15m in the same period a year earlier.
But that did not dent investor appetite for the stock, which closed 4.7 per cent higher. The bank set aside Dh3.3bn for loans that may go sour and took additional so-called portfolio impairments of Dh1.9bn to cover other eventualities. "While 2009 has witnessed continued stabilisation of local and international economies and improved sentiment and confidence, we continue to move forward in a prudent manner," said Ahmed Humaid al Tayer, the chairman, who also heads the Dubai International Financial Centre. "Uncertainties and challenges remain in the near term."
Dubai Islamic Bank, the country's largest Islamic lender, also reported a decline in full-year profit yesterday. Net income fell 40 per cent after the bank set aside Dh818m in provisions for bad loans. Its net profit for last year was Dh1.2bn, compared with Dh1.73bn in 2008. But growing profits in the final quarter of the year helped the stock rise 5.2 per cent yesterday. Many UAE banks have seen provisions drag their full-year results below those of 2008, with several even reporting losses in the final quarter.
The Dh3.3bn in bad-loan provisions reported by Emirates NBD was double the Dh1.7bn it set aside in 2008, and reflects the growth of non-performing loans on the bank's books. So far, Emirates NBD's retail and corporate customers have defaulted on 2.36 per cent of their loans, compared to 1 per cent at the end of 2008. Provisions now account for 105 per cent of its non-performing loans, the bank said.
The bank's bad-loan percentage is still far below an average 4.4 per cent level of bad loans in the banking system reported this week by the Central Bank. The regulator said it expected that figure to reach 6.5 per cent, or nearly Dh65bn, this year. The lender said it had taken all necessary provisions for the Saudi conglomerates Saad Group and Ahmad Hamad Al Gosaibi and Brothers. The Central Bank asked banks to account for at least half of their exposure to the two groups in their 2009 accounting.
Further straining local banks' balance sheets has been Dubai World's bid to delay repayments on $22bn of debts. Emirates NBD and Abu Dhabi Commercial Bank (ADCB) are believed to have the largest exposure to Dubai World. ADCB has about Dh9bn in outstanding loans to the group. So far, no UAE banks have taken provisions against Dubai World. For now, the conglomerate is still servicing its payments as it seeks a formal standstill agreement and a road map for restructuring with its creditors. However the uncertainties surrounding Dubai World have dampened investor sentiment.