Lower provisioning lifts the lenders’ profitability
Emirates NBD, DIB post higher-than-forecast first quarter net profit
Emirates NBD, Dubai’s top lender, and Dubai Islamic Bank, the emirate’s biggest Sharia-compliant lender, posted higher-than-forecast first quarter net profit as they set aside lower provisions to cover bad debt.
Emirates NBD reported a 27 per cent rise in first quarter net profit to a “record” quarterly income of Dh2.39 billion, which was attributed to loan growth and stronger margins. The results beat five analysts’ estimates averaging Dh2.17bn, according to Bloomberg.
“Emirates NBD delivered a strong set of results…underpinned by higher net interest income on the back of loan growth and improving margins and a lower cost of risk,” said Shayne Nelson, group chief executive of Emirates NBD. “The group’s balance sheet remains strong with solid liquidity and capital ratios and a further strengthening in credit quality.”
Banks in the UAE, the region’s second-biggest economy, have fared relatively better than some of their regional peers during the three-year oil price slump. They have, however, struggled to maintain credit and profit growth amid softer economic conditions in the past two years as non-performing loans spiked with defaults in businesses, especially, among the small and medium-sized enterprises.
Economic activity is picking up with the recovery in the oil prices, improving prospects for lenders in the country over the next 12 to 18 months, rating agencies and analysts have said.
Emirates NBD’s income rose 13 per cent year-on-year to Dh4.1bn, due to loan growth and the positive impact of recent rate rises, the bank said. Its net interest margin widened by 17 basis points (bps) to 2.68 per cent from 2.51 per cent in the fourth quarter of 2017, also helped by rate rises, as well as stable funding costs.
The results were better-than-expected thanks to “lower provisioning and non-interest margin expansion,” said Chiradeep Ghosh, an analyst with Bahrain’s SICO. The results were higher by 15 per cent than SICO’s forecast.
Impairment charges dropped 31 per cent from the year earlier period to Dh440 million.
“The operating performance for the first quarter of 2018 was pleasing as we delivered a record quarterly net profit supported by growth in our core business,” said Surya Subramanian, the bank's chief financial officer.
The bank continues to expand its international presence with a new branch opening in Jeddah last month and two further branches set to open in Saudi Arabia, he added. Emirates NBD is also in talks to buy Turkey's DenizBank, the lender said in January.
Meanwhile, Dubai Islamic Bank posted a 16.4 per cent year-on-year jump in net profit, as revenues climbed on the back of higher income from fees and commission business.
Net income attributable to equity owners surged to Dh1.17 billion from Dh1bn reported for the same period in 2017, DIB said in a statement to the Dubai Financial Market, where its shares are traded. Net revenue for the period amounted to Dh1.97bn, a 9 per cent rise from a year-earlier, supported by 15.5 per cent growth in fees and commissions income, it said.
The results beat five analysts’ estimates averaging Dh1.14bn, according to Bloomberg. The first-quarter net income was above SICO Bahrain’s forecast by 4 per cent.
“Operating expenses continues to improve, with cost to income ratio declining below 30 per cent,” said Mr Ghosh. “Financing book growth was 2 per cent quarter-on-quarter, which is strong but lower than what was achieved by DIB in the past quarters.”
The bank said that the profitability was supported by a strategy focus on building a quality financing portfolio while simultaneously managing costs.
“Whilst we continue on our expansionary agenda, this year is primarily about striking a balance between growth and profitability,” DIB group chief executive Adnan Chilwan said. He added one critical component that has helped the bank is its ability to pre-emptively create capacity, both with regards to liquidity and capitalisation, which has been a key differentiator that has allowed it to grow over the years.
The lender, which this year raised $1bn through a five-year sukuk and received shareholders’ nod for a capital increase through a rights issue, said its net financing and sukuk investments grew 3.5 per cent to Dh162.7bn in the first quarter from the levels recorded at the end of last year.