Emirates NBD Q1 profit falls 12% to Dh1.1bn

Emirates NBD, the largest bank in the region in terms of assets, saw its net profits in the first quarter decline 12 per cent to Dh1.1 billion from Dh1.3bn in Q1 2009 due to heavy impairment allowances and lower income.

That beat the median estimate of three analysts surveyed by Bloomberg of Dh711 million.

However, the bank saw a significant improvement in its net profits, compared with Dh178m for the last quarter of 2009.

Loan-to-deposit ratio witnessed an improvement to 11 per cent during the period, compared with 118 per cent at the end of 2009. While the non-performing loans (NPL) ratio increased to 2.63 per cent, deposits saw a six per cent growth and loans dropped by one per cent in the first three months of the year.

Chief Financial Officer Sanjay Uppal said in a conference call that he expects non-performing loans to peak at about three per cent. He expects loan growth of mid-single digits this year.

"During the first quarter of 2010 we have continued to deliver stable and robust financial results. We have maintained revenues at similar levels to the same period in 2009 and have continued to reduce operating expenses from ongoing rationalisation and our ability to leverage off the completion of the integration in 2009. Credit metrics remain in line with our expectations and our focus on balance sheet optimisation has yielded a significant improvement in our funding profile while maintaining strong capitalisation levels. At the same time, we have continued to invest in selected platforms for growth such as our Private Banking business and Abu Dhabi expansion and are well positioned to capitalise on expected improvements in economic activity," said Rick Pudner, Chief Executive Officer.

Impairment charges for the first quarter were up 20 per cent to Dh555m compared with Dh462m in the corresponding quarter of previous year.

This was driven by an expected increase in specific impairments across retail and corporate portfolios and the addition of Dh78m to portfolio impairment provisions during Q1 2010 as a measure of prudence in the current environment, partly offset by lower impairments on investment and trading securities.

The bank also reported a nine per cent reduction in its costs in the first three months of the year to Dh866 million. The cost-to-income ratio fell to 33.9 per cent in Q1 2010 from 34.9 per cent in the Q1 of 2009. The bank's capital adequacy ratio strengthened to 21.9 per cent from 20.8 per cent at the end of 2009. Increase in delinquencies and non-performing loans increased "broadly within the expected levels", it said.

Emirates NBD expects a resolution to Dubai World's debt restructuring in a "few weeks," Pudner said yesterday. Negotiations are making good progress, he added.

Emirates NBD is one the biggest lenders to state-owned Dubai World, which is restructuring $24.8bn of debt. Emirate NBD's net interest income dropped 10 per cent to Dh1.73bn, while the net interest margin, the difference between what the bank earns on loans and pays out on deposits and funds, narrowed to 2.58 per cent from 3.01 per cent.

Uppal said the bank expected net interest margins to "trend down toward the low 2s," which is within expectations.

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