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Emirates NBD falls short

Q2 profit falls 53 percent to 398 mln dirhams.

July 26, 2010 4:52 by

Emirates NBD, one of the Gulf banks most exposed to indebted Dubai World, missed analysts’ forecasts as its quarterly profit more than halved due to higher bad loan provisions.

ENBD, the biggest bank by assets in the United Arab Emirates, posted a 53-percent fall in second-quarter profit to 398 million dirhams ($108.4 million) from 852 million dirhams in the same quarter in 2009.

Analysts polled by Reuters had estimated an average profit of 736 million dirhams.

It took 745 million dirhams in provisions against bad loans in the first half, the bank said, increasing the total by more than 30 percent since the end of last year.

Shares in ENBD closed 0.8 percent higher after falling in early trade. The stock has dropped around 15 percent in the past three months, in line with the Dubai bourse’s performance.

ENBD is one of two local banks that sits on a seven-member committee handling debt talks between Dubai World, the state conglomerate which is restructuring billions of debt, and the rest of its lenders. The bank never revealed its exact exposure to Dubai World but committee members hold 60 percent of the conglomerate’s $14.4 billion debt pile. Also on the committee are HSBC , Lloyds , Royal Bank of Scotland , Standard Chartered , Bank of Tokyo Mitsubishi and Abu Dhabi Commercial Bank .

Dubai-based ENBD said the Dubai World restructuring is advancing “satisfactorily” and that it hasn’t booked any specific provisions or non-performing loans related to the conglomerate.

ENBD has “put it under general provisioning rather than specific as in the strictest sense the negotiations are still under way and the banks are not yet required to provide for it as such,” said Janany Vamadeva, banking analyst at HC Brokerage.

“We believe ENBD has provided for the bulk of its exposure (to Dubai World) during this quarter,” she said.

The United Arab Emirates central bank in April told local banks they “are not required to provision their related exposure to Dubai World” and that it would “provide further guidance to banks concerning the treatment of Dubai World debt in their books.”

ENBD, majority-controlled by Dubai, said its non-performing loan ratio rose to 2.88 percent from 2.36 percent at the end of 2009. Its net impairment loss inched up to 1.19 billion dirhams from 1.15 billion in the same period in 2009.


Chief Executive Rick Pudner said he expects the NPL ratio to peak at between 3 and 3.5 percent by the end of the year.

Dubai World on July 22 presented more details of its restructuring plan to creditors and warned it would use a special tribunal set up by decree to force any recalcitrant lenders back in line.

Net interest income and income from Islamic financing during the quarter rose marginally to 1.72 billion dirhams.

ENBD said “economic activity and credit expansion in the second quarter (was) relatively subdued as a result of renewed global uncertainties.”

For the remainder of the year, Pudner expects loan growth at the bank to remain flat, mainly due to a slow start in 2010 offsetting an anticipated recovery in the next six months.

The bank also said it had launched a $250 million car loan securitisation programme.

“We are looking at alternative avenues for medium-term funding,” Pudner said.

Emirates said it had provided for around two thirds of its exposure to Saad and Al Gosaibi, two troubled Saudi conglomerates. The bank holds around $350 million in exposure to the two firms.

Pudner also confirmed that Surya Subramanian will become the bank’s new chief financial officer by the end of August. Subramanian, a former Standard Chartered banker, will take over from Sanjay Uppal who recently left the bank.

(By Nicolas Parasie. Editing by Amran Abocar and Jason Neely)

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