Emirates NBD Second-Quarter Net Drops 53%, Below Estimates, on Loan Losses

Emirates NBD PJSC reported a worse- than-expected 53 percent decline in second-quarter profit as the United Arab Emirates’ biggest bank by assets set aside money to cover bad loans including exposure to state-owned Dubai World.

Net income dropped to 398.2 million dirhams ($108 million) from 852 million dirhams a year earlier, the Dubai government- controlled bank said in a statement to the bourse today. That fell short of the median estimate of four analysts for a profit of 614 million dirhams, according to data compiled by Bloomberg.

Emirates NBD raised general provisions for future loan impairments by 668 million dirhams in the second quarter, mainly to cover losses related to Dubai World, Chief Executive Officer Rick Pudner said in a conference call. Dubai World, which is delaying repayment of $14.4 billion of bank loans, is likely to complete the accord to restructure the debt by “about September, so we will know the specifics” of provisions then, he said.

U.A.E. banks are being hurt as the global credit crisis has weakened lending and investment banking activity, while provisions for defaults on loan repayments are rising. Emirates NBD is one of the biggest lenders to Dubai World, and the lender did not book “specific provisions” for impaired loans to the state-owned company, according to the statement.

Emirates NBD shares rose 0.8 percent to close at 2.5 dirhams after falling as much as 2.8 percent earlier. The shares have dropped 15 percent this year, compared with a 10 percent drop in the Dubai Financial Market Financial Banks Index.

Difficult First Half

“The real surprise was the loan loss provisions which doubled from the previous quarter,” Murad Ansari, a Riyadh-based analyst at EFG-Hermes Holding SAE said in a phone interview today. “Revenue more or less met our expectations.”

The first half was difficult for U.A.E. banks as rising retail and corporate impairments, debt restructuring at Dubai government-related entities, reduced lending and high loan-to- deposit ratios resulted in some stagnation, Fitch Ratings said in a report in June. The average non-performing loans to gross loans ratio for the nine largest banks in the U.A.E. rose to 4.3 percent in 2009 from 1.7 percent at the end of 2008, Fitch said.

U.A.E. economic growth may accelerate to 3.2 percent this year, with oil prices at $85 a barrel, from 1.3 percent in 2009, Economy Minister Sultan Bin Saeed al-Mansouri said in May.

Provisions

Emirates NBD said overall provisions for bad loans and investments rose 3.8 percent from a year earlier to 1.19 billion dirhams, taking the bank’s non-performing loans to total loans ratio to 2.88 percent. The bank booked 554.7 million dirhams as provisions in the first quarter. Overall loans fell 5 percent at the end of June to 203.7 billion dirhams from December, while bank deposits grew 9 percent to 197.6 billion dirhams.

Emirates NBD expects loan growth to be “flat” this year and its non-performing loans ratio to rise to about 3 percent to 3.5 percent by the end of this year, Pudner said on the conference call. “Credit metrics remain in line with our expectations and profitability remains good despite having conservatively added to our portfolio impairments,” he said in the statement earlier.

The bank’s net interest income rose 0.4 percent to 1.72 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 2.54 percent in the second-quarter from 2.59 percent in the first. Operating expenses fell 18 percent from the first quarter.

Restructuring, CFO

“Economic activity and credit expansion in the second quarter remained relatively subdued as a result of renewed global uncertainties,” Emirates NBD said. “Good progress is being made in resolving key debt restructurings and expected resolution during the next half year is expected to improve confidence and activity.”

The bank is raising $250 million for five years from an auto loan securitization program, which it expects to complete by the middle of August, Pudner said. It is also holding talks for the sale of a minority stake in its credit card processing unit Network International LLC and the bank expects to complete this in three to four months, he said.

Emirates NBD appointed Surya Subramanian as chief financial officer, Pudner said. Subramanian will join next month and replace Sanjay Uppal, who stepped down in April.

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

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