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UAE’s largest lender Emirates NBD sees positives in Q1 financial results

United Arab Emirates: Monday, April 30 - 2012 @ 10:36

Emirates NBD chief executive Rick Pudner insisted the group’s Q1 financial results were “robust”, despite the UAE’s largest lender by assets reporting a 55% slump in net profit in Q1 2012 compared to the year-earlier period. Amid uncertainty over the future direction of the bank’s Islamic finance units, Emirates NBD generated net profit of Dhs641m ($174.5m) in the first three months of this year, a fall of 54.6% compared with the same period last year. And although improvements in the Dubai property market helped the bank reduce charges for bad debts for the first time since June 2011, it still had to put aside a total of Dhs1.1bn to cover losses from bad debts.

The figures, nevertheless, beat analyst estimates and were hailed as positive by Pudner. “I’m pleased that the bank has been able to deliver a very robust set of results for the first quarter,” said the CEO. “The current period performance represents a good improvement on comparable quarters.”

The bank posted a Q1 2012 net profit of Dhs641m compared with Dhs152m in Q4 2010 and Dhs1.41bn in Q1 2011, when the bank’s figures were aided by an Dhs1.84bn gain on the sale of a stake in Network International, a Dubai-based payments card vendor. And it did manage to boost operating profits significantly, from Dhs83m in the first quarter of 2011, to Dhs643m in Q1 2012, as the Dubai economy strengthened and the bank’s underlying profits were boosted by an “absence of investment property write-downs” and an upturn in investment securities, according to Ben Franz-Marwick, head of investor relations at Emirates NBD.

Income increase supported by deposits

Assets rose 4% to Dhs296.7bn compared to Dhs284.6bn at end-2011, and while consumer loans nudged up to Dhs204.1bn in Q1 2012, from Dhs203.1bn at end-2011, deposits jumped 8% to Dhs208.5bn from Dhs193.3bn in the previous quarter. “Expected margin contraction from a re-pricing of loans has been mitigated by a push for retail deposits and our loan-to-deposit ration now stands at a healthy 98%,” noted Emirates NBD CFO Surya Subramanian.

Total income for the quarter increased by 19% to just under Dhs2.67bn compared with Dhs2.26bn in the 12 month earlier-period, and rose 8% compared with Dhs2.49bn in Q4 2011. Net interest income, meanwhile, improved by 8% to Dhs1.78bn from Dhs1.65bn in Q1 2011, but declined by 8% compared with Dhs1.93bn in Q4 2011. The bank attributed this drop primarily to a normalisation of the net interest margin to 2.63%, from 2.85% in the previous quarter. Emirates NBD said the expected reduction in the net interest margin arose primarily from loans re-pricing to lower EIBOR rates, and from the negative mix impact of an improved funding profile.

“There has been no need to take any further write-downs on either associates or investment properties so it’s been a pretty clean quarter from that perspective,” said Pudner. “We also saw further improvement in our liquidity and funding positions, as our loan-to-deposit ration moved to within our target range of 95 to 100%, and we’ve raised over Dhs7bn in medium-term debt.”

Emirates NBD has Dhs8.47bn of debt due in 2012 and Emirates Islamic Bank (EIB), a unit of Emirates NBD, in January completed the issuance of a $500m Islamic bond, or sukuk. The bond, which matures in 2017 and will pay a profit rate of 4.718%, was the first public issuance by EIB since 2007 and was three times oversubscribed, receiving more than $1.5bn in bids. And Emirates NBD raised 1bn yuan ($158m) in March from the sale of a three-year offshore yuan bond, also known as a ‘Dim Sum’ bond, the first such offering from the Middle East.

Costs and staffing reassessed after Dubai Bank acquisition

The bank’s costs in Q1 2012 amounted to Dhs942m, an improvement of 8% over Q4 2011 resulting from lower non-staff costs. “This focus on efficiency is expected to continue through the rest of the year to ensure we hit our 33 to 34% target,” Pudner confirmed. As a result of falling costs, the bank’s cost-to-income ratio for Q1 2012 of 35.1% was a marked improvement on the 41.1% reported in Q4 2011.

Emirates NBD cut 750 staff last month as it struggled to reduce the costs of acquiring the loss-making Dubai Bank. The Islamic finance house, which was taken over by the Dubai Government in May 2011 and then resold to Emirates NBD for a nominal Dhs10 in October after a clean-up of its balance sheet and a cash injection by various arms of the UAE and Dubai Governments, last published figures in 2009, when it had total assets of Dhs17.4bn against total liabilities of Dhs15.7bn, and posted a loss of Dhs291m.

“Steps have been taken to focus costs where they are most beneficial to our customers and service model, and this is expected to improve operating efficiency in the coming quarters,” said Subramanian. Pudner, meanwhile, confirmed that Emirates NBD was seeking approval to combine its Emirates Islamic Bank division with Dubai Bank. Emirates NBD must gain approval from the UAE Central Bank, the country’s finance ministry and the Dubai government, before it can complete the merger. The move, which had been widely anticipated, follows the appointment of a unified management team and an executive committee which oversees both divisions.

The bank is looking to save around Dhs140m in 2012 through synergies between the two lenders, and has appointed Jamal bin Ghalaita as the joint chief executive of its Islamic arms. “We’re progressing very successfully with the integration process,” said Pudner. “That’s the interim stage of putting the two banks together and the top team is now in place. We will see the benefits of this coming through, certainly in overall cost lines, through the rest of the year. It’s an ongoing process, and one which we imagine will come to its conclusion sometime in the first half of next year, but right now regulatory approvals are in the process of being obtained.”

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Monday, April 30- 2012 @ 10:36 UAE local time (GMT+4) Replication or redistribution in whole or in part is expressly prohibited without the prior written consent of Mediaquest FZ LLC.

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