Emirates NBD reported a sharp fall in net profits in the first quarter and warned this year remained "challenging" because of slowing growth in the global economy.
One of the biggest banks in the UAE, it generated net income of Dh641 million (US$174.5m) in the first three months of this year, a fall of 54.6 per cent compared with the same period last year.
"For the remainder of 2012 the external environment remains challenging in the context of weaker expected global growth resulting from recessionary risks in the euro zone, downgrades to US growth and an expected slowdown in Asia - China in particular," said Rick Pudner, the bank's chief executive.
Improvements in the Dubai property market helped Emirates NBD record its first quarter of falling charges for bad debts since June last year, but the bank still had to put aside Dh1.1 billion to cover losses from bad debts.
Mr Pudner said efforts to merge Emirates Islamic Bank and Dubai Bank were "progressing on schedule and to plan". He said this process required little more than regulatory approval before making a formal announcement.
Dubai Bank was taken over by the Dubai Government in May and then resold to Emirates NBD for a nominal Dh10 in October after a clean-up of its balance sheet and a cash injection by various arms of the UAE and Dubai Governments.
Emirates NBD cut 750 staff last month as it struggled to reduce the costs of acquiring the loss-making Dubai Bank. It has saved Dh80m as a result of the cuts, Mr Pudner said. "This focus on efficiency is expected to continue during the year," he said.
"We'll be hiring in certain areas and we'll be letting people go in certain other areas, depending on the business volume," he said.
The bank wants to save about Dh140m this year from the synergies between the two lenders. To do that Emirates NBD unified the management of the two organisation and appointed Jamal bin Ghalaita as the joint chief executive of its Islamic arms. "That's the interim stage of putting the two banks together. The top team has now been selected," he said.
Analysts have questioned from the start the logic of the bank owning two Islamic banking brands targeting similar customer segments.
Emirates NBD's shares fell 2.7 per cent in trading yesterday to Dh2.81 each, after the release of earnings. The bank's shares have slid 4.4 per cent this year, despite sharp gains for the Dubai Financial Market General Index during the same period.
One bright spot was the company's operating profits, however, which increased by a factor of eight compared with the first quarter of last year, from Dh83m to Dh643m, as the Dubai economy strengthened.
The bank's underlying profits were boosted by an "absence of investment property writedowns" and an upturn in investment securities, said Ben Franz-Marwick, the bank's head of investor relations. Emirates NBD was also boosted by higher brokerage fees as stocks in Dubai soared during the first quarter and volumes recovered.
Mashreqbank, which also reported yesterday, said its net profits rose for the first quarter to Dh271m, a 2 per cent increase on the same period a year earlier.
However, its net lending fell 1.4 per cent to Dh37.2bn, as Dubai banks lost out to an offensive by lenders based in the Northern Emirates that have not been as heavily hit by the effects of debt restructurings at Dubai World and other government-related entities.
Mashreqbank's shares, which are majority controlled by members of Dubai's Al Ghurair family and rarely trade, were unchanged yesterday at Dh91.45 each.