x Abu Dhabi, UAEMonday 22 January 2018

Emirates NBD profit 60% off after Dubai World provision

UAE's biggest bank by assets warns it expects overall level of bad debts to continue to rise over the next six to eight months.

Emirates NBD, the UAE's biggest bank by assets, said yesterday that provisions to cover its exposure to Dubai World debts resulted in a near 60 per cent drop in third-quarter profits.

The bank also gave warning yesterday that it expected the overall level of bad debts to continue to rise over the next six to eight months and that it had put money aside to account for the increase.

Rick Pudner, the chief executive of Emirates NBD, said: "We'd expect non-performing loans to rise to 4.5 per cent over the next six to eight months and then plateau." About 3.6 per cent of loans are non-performing. The bank reported a fall in profits of 59.7 per cent to Dh423.9 million (US$115.41m) for the third quarter compared with same period last year, with provisions making up the majority of the fall.

The bank said the new provisions covered its exposure to the troubled conglomerate in full but did not say how much of that loss resulted from the Dh2.9 billion of provisions it had made so far this year.

Surya Subramanian,the bank's chief financial officer, said the results were "reflective of our continued focus on balance sheet improvement".

"We've a sound business that's navigated safely through some interesting times," he said.

Mr Pudner said the larger than expected provisions were part of the bank's planned policy. "In a nutshell, it's due to the renegotiated debt over the next few years as they lower interest rates.

"We've had to provide for those cash-flow changes because of the difference in interest rates."

He added that, excluding the bank's Dubai World exposure, "we still believe Dubai is well positioned. It remains unrivalled as the region's key financial and economic hub."

Mr Pudner said the bank was in a good position to benefit from the economic recovery.

"We remain optimistic about the expected economic recovery and believe that Emirates NBD is well placed to take advantage of these opportunities."

Jaap Meijer, a financial analyst at Alembic HC Securities, said despite the increased provisions, the bad debts constituted a lower proportion of loans compared with historical precedents. Mr Meijer said Emirates NBD came nowhere near the highs of around 25 per cent seen in previous crises in Egypt.

"Lesson learned", he said. "Banks typically don't make the same mistake twice."

Mr Meijer said that disregarding the provisions for Dubai World, the bank's profitshad met expectations.

The bank posted a decline in operating profit of 7.5 per cent for the quarter, excluding provisions.

Naveed Ahmed, a financial analyst at Global Investment House, said: "The results would have been in line with expectations if the provisions hadn't been so high. The business is in good shape."

But Mr Ahmed said he would have liked to know how management had made the decision to increase provisions for Dubai World debts. "That would shed light on what's expected for the next quarter."

Banks' exposure to bad debts from Dubai World have cast a cloud over the sector for much of the past year.

Abu Dhabi Commercial Bank, which was most heavily exposed to Dubai World, is up 11 per cent in the past 12 months. This summer it revealed details about its debts of $1.8bn. National Bank of Abu Dhabi (NBAD), which has also declared its exposure, is down 4.5 per cent over the same time a year ago but has seen a substantial rally after the Dubai World debt standstill announcement in November last year.

NBAD reports earnings today, with First Gulf Bank due to declare its quarterly results tomorrow