Emirates NBD First-Quarter Net Drops 12% to $302 Million, Tops Estimates

Emirates NBD PJSC, the United Arab Emirates’ biggest bank by assets, reported a decline in first- quarter profit that wasn’t as steep as analysts had estimated and said there are early signs of an economic rebound.

Net income fell to 1.11 billion dirhams ($302 million), or 0.2 dirham a share, from 1.26 billion dirhams, or 0.23 dirham, a year earlier, the Dubai government-controlled bank said in a statement to Nasdaq Dubai today. That beat the median estimate of three analysts surveyed by Bloomberg of 711 million dirhams.

The first quarter “witnessed early signs of stability, increased economic activity and improved consumer sentiment,” Chief Executive Officer Rick Pudner said in a conference call. “Economic activity in the traditional trade, manufacturing and tourism sectors is showing signs of recovery.”

Earnings at U.A.E. banks were hurt last year as the global credit crisis weakened lending and investment banking, while provisions for bad loans rose amid the economic slowdown. The U.A.E. economy may grow 2.5 percent to 3 percent in 2010, compared with 1.3 percent expansion in 2009, U.A.E. Economy Minister Sultan Bin Saeed al-Mansouri said earlier this month.

State-owned Dubai World’s plans to restructure $24.8 billion of debt may also be weighing on the outlook for local banks. The global financial crisis led to a 50 percent decline in property prices in the city and hampered the ability of Dubai-based companies to raise loans to refinance debt.

Bad Loans

Emirates NBD’s provisions for bad loans rose 20 percent to 554.7 million dirhams, taking the ratio of non-performing loans to total loans to 2.63 percent. Overall loans fell 1 percent from December to March, while bank deposits grew 6 percent.

The non-performing loan ratio “will peak somewhere around the 3 percent range” by the middle of this year or in the third quarter, Chief Financial Officer Sanjay Uppal said in today’s conference call. Emirates NBD’s loans fell in the first quarter because customers are reducing debt and that trend will continue this year and slow in the first half of 2011, Uppal said.

Emirate NBD’s net interest income dropped 10 percent to 1.73 billion dirhams, while the net interest margin, the difference between what the bank earns on loans and pays out on deposits and funds, narrowed to 2.58 percent from 3.01 percent.

Uppal said the bank expected net interest margins to “trend down toward the low 2s,” which is within expectations.

Revenue

A “pickup in mark-to-market investment, fee income and a lack of impairment losses on the investment portfolio has propped up the bottom line,” Deepak Tolani, an analyst at Al Mal Capital, said in an e-mail. “The lack of loan growth and margin compression alludes to further pressure on revenue.”

Emirates NBD is considering plans to buy the retail banking assets of Royal Bank of Scotland Group Plc in the U.A.E., Uppal said March 30. RBS’s branches, its cash machine network and its wealth management clients would complement Emirates NBD’s retail-banking system, he said.

The lender plans to tap the debt market after Dubai World’s restructuring is complete, Chairman Ahmed Bin Humaid Al Tayer said after the bank’s annual shareholder meeting on March 24.

Dubai Electricity and Water Authority, the state-owned utility, raised $1 billion this month from a bond sale at a coupon of 8.5 percent, which “is still not the price that we would like to issue at,” CEO Pudner said. Emirates NBD already has enough cash to repay loans this year, he said.

Emirates NBD rose 1.7 percent to close at 2.95 dirhams. The shares are unchanged for the year.

The potential impact of Dubai World should continue to weigh on the stock and impact second-quarter earnings, said Tolani, who has a “market perform” rating on the stock.

To contact the reporter on this story: Arif Sharif in Dubai at asharif2@bloomberg.net

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