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Emirates NBD Net Drops After One-Time Gain, Beats Estimates

Emirates NBD PJSC, the United Arab Emirates’ biggest bank, said net income fell 55 percent in the first-quarter as a gain from the sale of a stake in a subsidiary last year wasn’t repeated. The profit beat analysts’ estimates.

Net income dropped to 641 million dirhams ($175 million), or 10 fils a share, from 1.41 billion dirhams, or 24 fils a share, in the year-earlier period, the bank 56 percent owned by the Dubai government said in a statement to Nasdaq Dubai today. That topped the 570 million-dirham median estimate of three analysts, data compiled by Bloomberg show. Emirates NBD made 1.84 billion dirhams last year from selling 49 percent of its credit-card processing unit Network International LLC.

Banks in the second-largest Arab economy are recovering from a slowdown in lending triggered by the global financial crisis and a real estate crash in Dubai, which hurt investment banking and led to an increase in bad loans. Emirates NBD’s provisions, including for loan losses, fell 20 percent in the first quarter to 1.1 billion dirhams, pushing the ratio of non-performing loans to gross loans to 14.1 percent in March from 13.8 percent in December, the bank said.

The bank expects lending to rise by as much as five percent in 2012, Chief Financial Officer Surya Subramanian told reporters on a conference call today. Loan growth in the first quarter “is in line with our full-year expectation of a 4 to 5 percent growth,” he said.

Bond Sales

Emirates NBD and its unit have already raised 7.4 billion dirhams this year from bond sales and private placements, Subramanian said. The bank’s loan book was unchanged at 204.1 billion dirhams at the end of March compared with December. Deposits rose 8 percent from December to 208.5 billion dirhams.

Although funds from bond sales “comes to us at a higher cost, the impact of which will flow through from the second quarter, we expect this to be offset by the excellent performance in retail deposit growth,” he said.

First-quarter net interest income rose 8 percent to 1.78 billion dirhams, while non-interest income jumped 49 percent to 909 million dirhams, the bank said. Net interest margin, the difference between what the bank earns from loans and what it pays out on deposits, fell to 2.63 percent in the quarter from 2.85 percent in the fourth quarter last year, the bank said.

“These results reflect the concern that we have about asset quality,” Shabbir Malik, an analyst at EFG-Hermes Holding SAE said in a phone interview from Dubai today. Revenue has increased “mainly because of stronger investment returns, but the interest income is down because of lower spreads,” he said.

New Rules

The lender’s shares fell 2.8 percent to 2.81 dirhams at the close in Dubai today, extending their decline this year to 4.4 percent. That compares with a 7.4 percent gain in the Bloomberg GCC 200 Financial Index.

Emirates NBD said it expects its non-performing-loan ratio to rise to between 14 percent and 15 percent this year and as high as 16 percent in 2013. The bank is one of the biggest lenders to investment company Dubai Group LLC, which is in talks with banks to reschedule $6 billion of loans.

Emirates NBD is assessing the impact of new central bank rules on limiting lending to the emirate’s government and state-owned companies and will discuss the issue with central bank, Chief Executive Officer Rick Pudner said in the call.

U.A.E. banks can lend no more than 100 percent of their capital to local governments and the same to government-related entities, the central bank said April 4. There was no limit under previous rules. Emirates NBD’s exposure to sovereign loans was 130 percent of regulatory capital at the end of 2011, according to the 2011 financial statements.

The new rules “will affect the levels of allowable lending to various government entities,” said Pudner. “It will have an affect but we need to sit down along with other banks and also the central bank to discuss the overall timing of this impact and how we are going to address it.”

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