NBD registers lower than expected profits

Hit by provisions for bad loans and losses on investments

The trials of the banking sector show few signs of letting up. Emirates NBD, the UAE's largest bank, reported a 52.7 per cent drop in second-quarter profits yesterday, as provisions for bad loans and losses on investments continue to be major headaches. Emirates NBD, which serves as a bellwether for lending in the UAE, also saw the value of its loans decline by 5.5 per cent in the first half of the year. Deposits rose by 8.8 per cent in the same period, reflecting the bank's effort to restructure its balance sheet and stabilise its sources of financing.

"The profits number is lower than expectations by 15 per cent," said Janany Vamadeva, a banking analyst at Al Futtaim HC Securities in Dubai. The bank took Dh1.19 billion in impairments against investments and troubled loans in the second quarter, partly in anticipation of a final deal by the end of the year on Dubai World's $23.5bn debt restructuring. Banks across the Gulf have wrestled with a marked increase in problem loans since the beginning of the financial crisis and analysts do not expect the cycle of provisioning to end before next year.

According to Central Bank figures, loan provisions at UAE banks stood at Dh36.9bn at the end of last month, up from Dh23.9bn in the same month last year. The high provisioning and impairments were a "negative surprise" in Emirates NBD's results, Ms Vamadeva said. Emirates NBD's non-performing loans stood at 2.8 per cent of overall loans at the end of last month, up from 2.3 per cent at the end of last year. Moody's recently estimated that non-performing loan ratios for UAE banks as a whole could rise to between 9.5 and 12.5 per cent by the end of this year. Whether that prediction comes true is anybody's guess but results such as Emirates NBD's illustrate that banks still have much ground to cover.

Ahmed Humaid al Tayer, the bank's chairman, acknowledged the headwinds yesterday but said the lender was "optimistic" about an economic recovery. The company's shares attracted buyers after falling sharply in early trading and closed 0.8 per cent ahead at Dh2.50. [e-mail]