Emirates NBD to provision for UP

Dubai-based Emirates NBD bank, which booked Dh3 billion in impairments in the first nine months of this year, is expected to book Dh800 million in impairments related to its real estate subsidiary Union Properties (UP) alone during the fourth quarter this year, said an analyst.

The bank posted loss of Dh477 million on its investments in associates last year compared to a positive contribution of Dhs338 million during 2008, principally driven by losses incurred by Union Properties during 2009 as well as Dhs316 million impairments recognised on the bank's investment in the company.

Emirates NBD holds a 48-per cent stake in Union Properties, which has been hit by the downturn.

The bank, largest by assets in the UAE, is projected to take Dh634 million in loan provisioning for the fourth quarter this year and Dh3.4 billion for the whole financial year, said Raj Madha, Middle East and North Africa banking analyst for Rasmala Investment Bank in Dubai.

In a recent note, Madha said that that uncertainty and profitability at the bank need to improve. "The jump in NPLs (non-performing loans) does little to remove loan book uncertainties. Meanwhile, bears will continue to look to Q4 writedowns of Union Properties and the on-going renegotiation of Dubai Holding," he said, adding that the bank will "be able to match the levels of profitability of its peers... We believe that fees and commissions will see some bounce-back in Q4. We maintain our expectation for a strong bounce back in second half of next year."

He believes that the bank's impairments will drop to Dh2.4 billion next year.

Emirates NBD third-quarter net profit more than halved due to a spike in bad loans and a provision for its exposure to Dubai World. The bank reported Dh424 million third-quarter profit compared with Dh1.05 billion in the same quarter one year ago.

Madha projected impairments are expected to continue downward across the industry in the coming period.

"We do not expect an increase in the rate of impairments, but we do expect NPLs (non-performing loans) to continue to rise through 2011. We believe that total provisions should peak towards the end of 2011, although the rate of provisioning may have already peaked with the Dubai World restructuring, and is likely to come down once any Dubai Holding restructuring is out the way," Madha added.

Latest UAE Central Bank statistics showed that total provisions rose 4 per cent month on month or Dh2.1bn to Dh54.1bn, one of the highest monthly growth rates of the year.

Rasmala maintained its "Buy" recommendation for Emirates NBD with an unchanged price target of Dh3.41 for Emirates NBD.

Follow Emirates 24|7 on Google News.