Dubai’s Biggest Bank May Need $2.2 Billion to Cover Bad Debt, Goldman Says

Emirates NBD PJSC, the United Arab Emirates’ biggest bank by assets, may need to set aside as much as 8 billion dirhams ($2.2 billion) by the end of 2013 to cover for bad loans, Goldman Sachs Group Inc (GS) said. The shares dropped.

“Looking at the guidance provided on asset quality trends, we calculate a provisioning range of 6 billion dirhams and 8 billion dirhams is required between the fourth-quarter of 2011 and the fourth-quarter of 2013,” analysts including Waleed Mohsin and Ali Shekofti wrote in a report dated today.

Emirates NBD is one of the biggest creditors to Dubai World, one of the emirate’s three main state-owned holding companies that reached a deal in March to delay payments on $25 billion of loans. It is also a key lender to units of Dubai Holding LLC, one of whose investment companies is in talks with banks to reschedule at least $10 billion of liabilities. The bank in October took over the unprofitable Dubai Bank on orders from the emirate’s ruler.

Non-performing loans on the books of Dubai’s banks will peak at 15 percent to 16 percent in 2013, up from 4.8 percent in 2009 and 11.3 percent in 2010, investment bank Exotix Ltd. said Dec. 4. Moody’s Investors Service expects provisions to peak at 13 percent to 16 percent next year, it said in a report Nov. 3.

“The significant increase in the renegotiated private sector loans hides the true extent of the banks’ asset quality problems,” Fitch Rating said in a report on U.A.E. banks yesterday. “Whilst fundamental credit issues in the operating environment remain unresolved, some of these loans may re-emerge as non-performing loans.”

Shares Drop

Goldman Sachs, which has a “neutral” recommendation on Emirates NBD (EMIRATES), cut the price estimate of the shares to 4.38 dirhams from 4.79 dirhams to reflect “lower earnings expectations.” The stock dropped 1.5 percent, the most in a week, to close at 3.25 dirhams in Dubai today.

Emirates NBD, 56 percent owned by the Dubai government, reported a 59 percent decline in third-quarter profit to 175 million dirhams as loan-loss provisions rose. The bank’s ratio of non-performing loans to total loans will rise to as much as 14 percent by the end of the year and advance by 1 percentage point annually over the next two years, it said in October.

The bank is aiming to sell an Islamic bond this month, Chief Executive Officer Rick Pudner said yesterday.

Fitch Ratings placed Emirates NBD’s credit rating on notice in October for a possible downgrade on concern that a rise in bad loans due to a weak property market and the impact of a slowing global economy will affect the bank’s outlook. Fitch rates the company A+, the fifth-highest investment grade, while Moody’s Investors Service rates the bank A3, the fourth-lowest.

To contact the reporter on this story: Shaji Mathew in Dubai at shajimathew@bloomberg.net

To contact the editor responsible for this story: Claudia Maedler at cmaedler@bloomberg.net

Bloomberg reserves the right to remove comments but is under no obligation to do so, or to explain individual moderation decisions.

Please enable JavaScript to view the comments powered by Disqus.