Provision spike eats into ENBD profit

Dubai’s largest lender Emirates NBD’s saw a sharp increase in its quarterly provisions on Thursday, overshadowing a 21 percent increase in its third-quarter net profit that fell short of analysts’ expectations.

The lender, 55.6-percent owned by state fund Investment Corp of Dubai, made a net profit of 775 million dirhams ($211 million) in the three months to Sept. 30, a statement said, compared with 640 million dirhams in the same period last year.

An average of six analysts polled by Reuters expected a net profit of 937.5 million dirhams for the quarter.

Its third-quarter earnings were boosted by a 30 percent year-on-year increase in net interest income, which rose to 2.25 billion dirhams on the back of higher lending and improved net interest margins.

However, quarterly performance was dragged down by a 50 percent spike in impairments, which jumped to 1.52 billion dirhams from 1.01 billion dirhams in the same period last year.

The lender was heavily hit by impairment allowances in the latter half of 2011 and the first six months of 2012, which dragged down profits at the bank. Its exposure to indebted Dubai state-linked entities was among the main reasons for this.

However, the previous four quarters had seen the growth of impairments stall and, while still high, seemed to have peaked.

The bank revised downwards by 1 percentage points its 2013 guidance for non-performing loans to 14-15 percent of its total lending book, Chief Financial Officer Surya Subramanian told a second-quarter results media call in July.

But in a July report on Dubai, the International Monetary Fund warned that ENBD’s increasing exposure to the emirate’s government and state-linked firms was a risk for the bank, raising corporate governance and risk management concerns.

ENBD, which completed the purchase of BNP Paribas’ Egyptian assets in June, has benefited from Dubai’s improved economic environment in recent months, where a real estate revival has helped breathe confidence into the wider economy.

Its shares have doubled year-to-date, while Dubai’s benchmark index has risen 78.8 percent during the same period.

Loans and advances stood at 234.4 billion dirhams at the end of September, up 7 percent on the end of 2012.

Outgoing Chief Executive Rick Pudner – who will be replaced by Shayne Nelson, currently head of Standard Chartered’s private banking arm, at the end of the year – said in January the bank was forecasting 5 percent loan growth in 2013.

Meanwhile, deposits also increased by 7 percent over the same time frame, standing at 228.6 billion dirhams at the end of the third quarter.

The bank booked a gain of 191 million dirhams from the sale of a 32.6 percent stake in Union Properties during the first nine months of 2013, the statement said, with its holding now at 15 percent of the developer.

ENBD’s stake in Union Properties was 47.6 percent at the beginning of the year but the bank began reducing that during the first half of the year as it looked to rebalance its exposures to the local property sector.-Reuters