x Abu Dhabi, UAETuesday 23 January 2018

Emirates NBD beats estimates as second-quarter profit soars

Dubai's biggest bank beat estimates for second quarter profit after new loans grew and it absorbed the Egyptian retail banking assets of BNP Paribas.

Emirates NBD's higher operating income was driven by higher lending margins and increased fees and commissions. Duncan Chard / Bloomberg News
Emirates NBD's higher operating income was driven by higher lending margins and increased fees and commissions. Duncan Chard / Bloomberg News

Emirates NBD beat estimates for second-quarter profit as the rebounding economy drove demand for new loans and the bank lowered its forecasts for bad debts this year.

The bank has also repaid Dh7.8 billion this year of crisis-era funding provided by the Ministry of Finance and sold down a large stake in Union Properties, a property developer, to cut its exposure to the sector. Dubai’s biggest bank, which is controlled by Investment Corporation of Dubai, reported net profit for the second quarter of Dh971.6 million, an increase of 50 per cent compared with the corresponding period a year earlier.

Analysts had estimated the bank would post profits of Dh799.5m.

The results drove the bank’s shares up 6 per cent. The stronger than expected growth was attributable to “positive momentum in the UAE economy”, said Rick Pudner,the bank’s chief executive.

Increased tourist arrivals, recovering private-sector trade and rising oil output have helped to propel the UAE’s economy, which Emirates NBD expects will grow at 3.8 per cent this year, down from 4.4 per cent last year.

The bank also lowered its forecasts for bad debts from 15 to 16 per cent of lending this year to 14 to 15 per cent given the improvement in the local economy. During the quarter, Emirates NBD finalised its US$500m acquisition of the retail banking operations of BNP Paribas in Egypt. The relative health of the bank’s balance sheet also contributed to lower expectations of bad debts. Despite the positive outlook, the slowdown of growth in Asian economies – principally China – has hit growth elsewhere in the Arabian peninsula and encouraged Emirates NBD to book the highest charges for missed payments in six months.

Charges on loan losses rose 4.3 per cent to Dh996.4m compared with a year earlier as the bank warned of “challenging” market conditions overseas and an expected slowdown in Asia.

Operating income grew 16.8 per cent to Dh2.9bn, driven by higher lending margins and increased fees and commissions.

The better than expected results were “very likely to prompt us to revise our full-year estimates on the bank significantly upwards,” said Naveed Ahmed, an analyst at Kuwait’s Global Investment House, in a note to clients.

Emirates NBD sold a portion of its stake in Union Properties, reducing its stake in the Dubai developer to 31.4 per cent from 47.6 per cent, but did not generate any income from the sale as it wrote down the carrying value of its remaining holdings.

The bank also repaid most of the funding support provided by the Government during the financial crisis, repaying Dh4.8bn during the quarter. The Ministry of Finance provided Dh70bn in liquidity support to lenders in 2008 to steady the banking sector.

The bank retains Dh4.7bn of the Dh12.6bn in funding provided by the Ministry of Finance in 2008, but said it had no specific timetable for repaying the balance at this time.

“They’ve brought it down quite sharply,” said Shabbir Malik, an analyst at EFG Hermes. “They’re gradually reducing their dependence on Ministry of Finance deposits.”

Emirates NBD is the last of the UAE’s big banks still to repay the Government. Lenders including National Bank of Abu Dhabi, First Gulf Bank and Dubai Islamic Bank have repaid these facilities in full this year.

As the sector returns to health, UAE banks are expected to be among the strongest market performers in the region this year, said Abdul Kadir Hussain, the chief executive of Mashreq Capital.

“Risk charges and non-performing loans have come down and overall the economies are doing well,” he said. “You’re starting to see some loan growth: borrowing from the corporate side and consumer side.”

Earlier this year, National Bank of Abu Dhabi nipped ahead of Emirates NBD to become the biggest bank in the UAE by total assets. NBAD is due to report earnings today.