Emirates NBD Misses Estimates as Funding Costs Increase in Gulf

  • Income from lending rises 3%, while provisions drop 24%
  • Net interest margin declines as local interest rates rise

Emirates NBD PJSC reported first-quarter profit that missed analyst estimates as a rise in lending income and a drop in provisions at Dubai’s biggest bank was partly offset by higher funding costs.

Net income advanced to 1.81 billion dirhams ($493 million) from 1.67 billion a year earlier, according to a statement posted on Nasdaq Dubai. The median estimate of three analysts was for a profit of 1.91 billion dirhams, according to data compiled by Bloomberg. Net interest income rose 3 percent and impairment allowances, including for bad loans, dropped 24 percent. The bank’s net interest margin declined to 2.6 percent from 2.9 percent.

“Liquidity pressures in the sector continued to ease in the first-quarter from the tight conditions experienced in the second-half of 2015,” Shayne Nelson, group chief executive officer, said in the statement. “We remain cautiously optimistic for the remainder of 2016 but are conscious of the headwinds that a strong dollar and volatile oil price can present.”

Banks from the United Arab Emirates to Saudi Arabia are facing liquidity pressures as a more than halving of oil prices over approximately the past two years has slowed deposit growth and pushed up funding costs. The three-month Emirates Interbank Offered Rate, a benchmark used to price some loans, climbed 29 basis points in the past year to its highest in nearly three years. Banks are preparing for deteriorating conditions into next year as oil prices remain lower for longer, leading to a decline in government spending, slower economic growth and falling asset quality, Standard & Poor’s said in January.

Emirates NBD’s loans increased 12 percent at the end of March from a year earlier to 279 billion dirhams, while deposits grew at the same pace to 291 billion dirhams. The ratio of bad loans to total loans fell to 6.9 percent in the quarter, from 7.1 percent in the preceding three months helped by a write-back and recoveries of 226 million dirhams, the bank said.

Before it's here, it's on the Bloomberg Terminal.