Emirates NBD, the country's largest bank by assets, saw its annual net profit drop by 7 per cent to Dh3.68 billion (US$1bn) last year, following write-downs on investments. The first Dubai-based bank to report its profits, Emirates NBD is the only lender in the Emirates so far to report a drop in net profit for last year. Several have reported a decline in earnings during the final quarter of last year due to the global financial crisis, and provisions taken against the possibility that their loan quality could deteriorate.
"The UAE economy is expected to slow down which will impact banking asset and income growth in 2009," said Rick Pudner, the chief executive of Emirates NBD. "The current environment is presenting challenges in terms of liquidity, funding, profitability and asset quality." Emirates NBD's fourth-quarter net profit shrank by 98 per cent to Dh14m, compared with Dh1.2bn during the same period in 2007. The decline in profit was due in part to write-downs and impairments which totalled Dh2.26bn. Of that, Dh455m was on credit default swaps.
The bank was formed in October 2007 out of the merger of Emirates Bank International and National Bank of Dubai. Mr Pudner said Emirates NBD "[is] the consolidator of choice in the region and is well placed to take advantage of any attractive opportunities that will emerge over the course of this year". The rest of the country's banks are expected to report their 2008 results within the next few weeks. Mashreqbank, the country's fifth largest bank by assets, is expected to report on Sunday.
According to Mr Pudner, last year Emirates NBD received Dh12.6bn in emergency liquidity in the form of three and five-year deposits from the Ministry of Finance, which is still expected to inject an additional Dh20bn into Emirates banks within the next few months. "I see the Dh12.6bn as a real positive. People worry that Dubai has been neglected, that there is not tangible evidence of any help coming to Dubai from the federal level. Clearly that is not the case," said Ali Khan, the director of Arqaam Capital.
The bank took provisions "on the assumption that the economy is going to get worse before it gets better", Mr Pudner said. Non-performing loans made up 1 per cent of the bank's Dh213.1bn loan portfolio at the end of last year, but that figure was expected to increase this year. Property and construction loans made up 15 per cent of the loan portfolio, with personal retail loans accounting for an additional 12 per cent. Since some home buyers may have used personal loans to finance property purchases, analysts said there was still some uncertainty over the full extent of the bank's exposure to the property sector.
Mr Pudner said "a correction is evident in the Dubai real estate sector, but we remain comfortable with our overall exposure and draw comfort from our prudent credit and underwriting standards". Property developers Emaar, Dubai Properties and Nakheel accounted for 77 per cent of the mortgages financed by the bank. "We know they are a Dubai bank, and that they therefore operate in Dubai, but none of these developers are doing very well, so 77 per cent is a big number," a Dubai-based analyst said. Emaar yesterday reported a fourth-quarter net loss of Dh1.77bn.
Emirates NBD's capital adequacy ratio was 11.1 per cent at the end of last year, down from 12.5 per cent in 2007. Total assets rose 11 per cent to Dh282.4 billion last year, from Dh253.8 billion at the end of 2007. The board of directors would recommend a 20 per cent cash dividend and a 10 per cent stock dividend to shareholders for the 2008 financial year, the bank said. Trading on Emirates NBD shares was suspended yesterday, awaiting the results. On Wednesday, the share price closed at Dh3.12.