Emirates NBD Third-Quarter Net Drops 60% on Provisions; Misses Estimates

Emirates NBD PJSC reported a 60 percent drop in third-quarter profit, missing analysts’ estimates, as the United Arab Emirates’ biggest bank set aside more money to cover bad loans.

Net income fell to 424 million dirhams ($115 million) from 1.05 billion dirhams a year earlier, the Dubai government- controlled bank said in a statement to Nasdaq Dubai today. The median estimate of three analysts was for a profit of 810 million dirhams, according to data compiled by Bloomberg.

U.A.E. banks are being hurt after the global credit crisis weakened lending and investment banking, pushing up provisions for defaults on loan repayments. Emirates NBD is one of the biggest lenders to state-owned Dubai World, which plans to delay repayments on $24.9 billion of debt. The bank booked full impairment provisions for its Dubai World loans in the third quarter and set aside money to cover 70 percent of its exposure to Saudi Arabia’s Saad and Algosaibi business groups.

“Fee and commission income is down sharply from the second quarter and we have low growth offset by good cost control,” said Raj Madha, a banking analyst at Rasmala Investment Bank Ltd. “We expect elevated provisioning” at U.A.E. banks to continue in 2011, although it won’t be as high as this year, he said.

Provisions

Emirates NBD said overall provisions for bad loans rose 67 percent from a year earlier to 1.2 billion dirhams, taking the bank’s non-performing loans to total loans ratio to 3.66 percent. Overall loans fell 6 percent from December to 201.1 billion dirhams at the end of September, while deposits grew 10 percent to 198.8 billion dirhams.

Emirates NBD shares closed unchanged at 3 dirhams on the Dubai bourse today. They have risen 1.7 percent this year.

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 as the economy slowed, Fitch Ratings said in a report in June. Economic growth in the U.A.E., the second-biggest Arab economy, will probably improve to 3.2 percent in 2011 from 2.4 percent this year, according to estimates from the Washington-based International Monetary Fund.

“We would expect NPLs to rise to about 4 percent to 4.5 percent over the next six-eight months and then plateau,” Chief Executive Officer Rick Pudner told reporters on a conference call today. Emirates NBD expects no loan impairments from property company Nakheel PJSC’s debt reorganization, he said.

Nakheel

Nakheel, the Dubai World-owned property developer, said in July a group of creditors unanimously supported a plan on altering the terms on $10.5 billion of loans and unpaid bills. The company plans to offer lenders interest of 4 percentage points more than benchmark rates as it reorganizes debt, two bankers with knowledge of the plan said on July 13.

Emirates NBD’s net interest income fell 7 percent to 1.7 billion dirhams, while fee and other income rose 1 percent to 676 million dirhams. The net interest margin, the difference between what the bank earns on loans and pays out on deposits and funds, narrowed to 2.51 percent in the third quarter from 2.54 percent in the second.

The bank’s cost-to-income ratio was 30.9 percent, compared with 32.4 percent a year ago.

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

To contact the editor responsible for this story: Edward Evans at Eevans3@bloomberg.net

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