Emirates NBD Misses Estimates as Bad Loan Provisions Climb

Emirates NBD PJSC, Dubai’s biggest bank, reported a 21 percent increase in third-quarter profit, missing analyst estimates, as provisions for bad loans climbed.

Net income rose to 776 million dirhams ($211 million) from 640 million dirhams a year earlier, the state-controlled bank said in a statement today. The mean estimate of five analysts was for a profit of 923 million dirhams, according to data compiled by Bloomberg. Impairment provisions jumped 50 percent from a year ago to 1.52 billion dirhams and now cover 54.8 percent of bad loans compared with 48 percent a year ago. The bank’s full-year target is to cover 55 percent to 60 percent.

The impairment charge primarily includes “conservative specific provisions made in relation to the bank’s corporate and Islamic financing portfolios,” Emirates NBD said. “Going forward the bank aims to keep improving the coverage ratios.”

Emirates NBD, which hired Standard Chartered Plc’s Shayne Nelson to replace Rick Pudner as chief executive officer, is recovering from the global credit crisis, which slowed lending, hurt investment banking and led to a surge in loan-loss charges as defaults rose. Dubai’s economy, the second-biggest in the United Arab Emirates, is set to expand 4.6 percent on average from 2012 to 2015, more than twice as fast in the prior four years, according to government forecasts.

Shares of Emirates NBD have almost doubled this year and fell 0.7 percent to 5.65 dirhams today in Dubai.

NPLs Ratio

Emirates NBD is one of the biggest lenders to investment company Dubai Group LLC, which is in talks with lenders to delay payments on $6 billion of debt. The bank’s ratio of non-performing loans to total loans worsened to 14.1 percent in the third quarter from 13.9 percent in the preceding three months mainly because of a 1.1 billion-dirham increase in impaired loans in the bank’s Islamic corporate portfolio, it said.

The bank will target a non-performing loans ratio of 12 percent over the next two years compared with this year’s guidance of 14 percent to 15 percent and plans to boost provisions to cover 80 percent of bad loans, Chief Financial Officer Surya Subramanian said on a conference call today.

Net interest margin, or the difference between what the bank earns on assets such as loans and what it pays on liabilities such as deposits, is expected to be from 2.55 percent to 2.65 percent in 2013, the company said.

Economic Recovery

The U.A.E.’s economic recovery is helping improve profit at banks. Abu Dhabi Commercial Bank PJSC, the country’s fourth-biggest lender, yesterday reported a better-than-expected 47 percent jump in third-quarter profit to 874.2 million dirhams as non-interest income surged and provisions for loan losses fell.

Lending is expected to increase by 6 percent to 7 percent in 2014, Pudner said on the conference call today.

Bank lending in the U.A.E., the second-biggest Arab economy, rose 6.4 percent in the year through July, according to central bank data. That compares with a 15 percent increase in lending to the private sector in August in Saudi Arabia, the largest Arab economy, and a 13 percent advance in domestic lending in gas-rich Qatar in September.

Emirates NBD this year completed the acquisition of BNP Paribas SA’s Egyptian unit in a $500 million deal to gain access to the most populous Arab country.

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