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Emirates NBD Fourth-Quarter Net Drops 62%, Misses Estimates

Emirates NBD PJSC reported a 62 percent decline in fourth-quarter profit as the United Arab Emirates’ biggest bank by assets boosted bad loan provisions and said it sees lending growing by 4 percent this year.

Net income dropped to 152 million dirhams ($41 million) from 403 million dirhams a year earlier, the Dubai government-controlled bank said in a statement to Nasdaq Dubai today. The median estimate of four analysts was for a profit of 172 million dirhams, according to data compiled by Bloomberg.

“The results are strongly ahead of our expectations, but the main positives were lower provisioning and lower losses from associates,” said Raj Madha, an analyst at Dubai-based Rasmala Investment Bank Ltd., which raised its recommendation on the stock to “buy” yesterday. “There were slightly higher costs than we expected, and that meant operating profits were a little bit lower than we had forecast.”

Emirates NBD is one of the biggest lenders to units of Dubai Holding LLC, which owns an investment company that’s in talks with banks to reschedule at least $10 billion of liabilities. The bank paid 10 dirhams ($2.72) to buy Dubai Bank PJSC last year and received a deposit from the federal government and a state guarantee as part of the transaction.

Provisions rose to 1.06 billion dirhams from 201 million dirhams a year earlier, while the takeover of Dubai Bank in October didn’t impact the group’s “net profit or non-performing loans ratio on the date of the takeover,” the lender said.

Loan Growth

The board recommended a dividend of 20 fils a share for last year, it said. The shares rose 0.7 percent to 3 dirhams in Dubai today, taking this year’s gain to 2 percent. That compares with a 13 percent rise in the benchmark DFM General Index.

Emirates NBD expects lending to increase in the “range of 4 percent” this year, “with signs of modest pickup in new” lending in the fourth quarter, Chief Executive Officer Rick Pudner said in a conference call with reporters today.

U.A.E. banks had to face an increase in loan defaults after the global credit crisis hurt the country’s real-estate industry and slowed trade. National Bank of Abu Dhabi PJSC, the second-biggest lender in the Persian Gulf nation, posted a 1 percent drop in fourth-quarter profit, missing analyst estimates, as expenses rose and it set aside more money to cover bad loans.

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 in December. Moody’s Investors Service expects provisions to peak at 13 percent to 16 percent this year.

Possible Downgrade

Emirates NBD’s ratio of non-performing loans to gross loans rose to 13.8 percent in the quarter from 12.9 percent at the end of the previous one, according to the statement. The non-performing-loan ratio will rise to between 14 percent and 15 percent this year and to between 15 percent and 16 percent in 2013, it said.

Fitch Ratings placed Emirates NBD’s credit rating on watch in October for a possible downgrade on concern that an increase in bad loans due to a weak property market and 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.

Emirates NBD’s net interest income from lending rose 19 percent to 1.93 billion dirhams, according to the statement. Lending in 2011 grew 4 percent to 203.1 billion dirhams, while deposits dropped 1 percent to 284.6 billion dirhams.

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