Higher net interest income, lower provisions and improved margins drove growth
Emirates NBD, DIB report higher-than-forecast Q2 net profit
Emirates NBD, Dubai’s biggest lender by assets, reported a 30 per cent growth in second quarter net profit, beating analysts’ forecasts, thanks to higher net interest income and lower provisions.
Dubai Islamic Bank, the biggest Sharia-compliant lender in the emirate, and Mashreq also posted an uptick in profit for the quarter.
Emirates NBD's net profit attributable to equity holders rose to Dh2.6 billion ($700 million) in the three months to end of June, the bank said on Wednesday in a filing to the Dubai Financial Market, where its shares are traded.
“For the first time in the group’s history, Emirates NBD delivered a half-yearly net profit in excess of Dh5bn underpinned by higher net interest income on the back of loan growth and improving margins and a lower cost of risk,” the bank's group chief executive Shayne Nelson said.
“The bank’s balance sheet remains solid with a further strengthening in capital due to retained earnings, coupled with stable liquidity and credit quality ratios.”
The results beat the median forecast of Dh2.2bn, according to a Bloomberg poll of two analysts. Net impairment loss on financial assets fell 97 per cent to Dh314m in the second quarter from the year-earlier period.
Banks in the UAE have fared better than some of their regional peers during the three-year oil price slump, but struggled to maintain credit and profit growth amid softer economic conditions and a rise in non-performing loans.
However, analysts including Moody’s have said banks across the GCC are likely to see improved financial performance this year, due to an uptick in the regional economy.
“The [Emirates NBD] results were very good – higher than my expectations – with margins increasing quite a bit and provisions improving significantly, continuing their downward trend since 2015,” said Chiradeep Ghosh, a banking analyst at Bahrain's Sico Bank.
“We think [provisions] are unlikely to go up in the second half," he said. Overall, a 15 per cent year-on-year growth in earnings for full-year 2018 “looks quite possible”, Mr Ghosh added.
Net interest income improved 20 per cent year-on-year in the quarter, helped by a 4 per cent increase in customer loans to Dh316.4bn, and a continuing improvement in margins, which rose by 33 basis points year-on-year to 2.78 per cent, the bank said.
The bank said on Sunday it has both direct and indirect exposure totalling $39m to embattled private equity group Abraaj.
Dubai Islamic Bank reported a 14 per cent increase in second quarter net profit to Dh1.21bn in a bourse filing. The results beat analysts’ median estimate of Dh1.09bn, according to a Bloomberg poll, due to higher core business income.
“This was also higher than my forecast, due to commendable loan growth at 5 per cent quarter-on-quarter – above the 1 per cent industry average – and stable margin growth,”Mr Ghosh said.
DIB raised Dh5.1bn in a capital increase earlier this year and the bank has “ample liquidity” on its balance sheet, supporting credit growth, Mr Ghosh said. “Despite the larger capital base, we expect the bank to maintain its 0.45 per cent dividend share this year.”
DIB was one of the top picks in Egyptian investment bank EFG Hermes’s second-quarter banking outlook due to a “favourable mix of growth, valuations and profitability". It estimated DIB profit for the quarter of Dh1.08bn.
“Wider spread and lower provisioning were the key drivers of the earnings beat relative to our estimate,” said Shabbir Malik, lead banking analyst at EFG Hermes in a briefing note on Wednesday.
“The bank demonstrated good cost discipline and delivered positive 11 per cent year-on-year revenue growth versus annual cost growth of 5 per cent. Provisioning was lower than expected,” he added. DIB is targeting an expansion of its non-UAE operations in the coming years, said the bank’s chief executive Adnan Chilwan.
Meanwhile, Dubai lender Mashreq Bank reported a 1 per cent increase in year-on-year net profit for the second quarter to Dh563m.
"With the UAE banking sector continuing to grow on the back of improved economic growth in 2018, we are optimistic of a growth rate aligned to the market, and going forward, are focused on achieving this via increased digital capabilities," said Abdulaziz Al Ghurair, Mashreq bank's chief executive.