Emirates NBD sees profits drop 30% (page 1 of 2)

The UAE's largest bank by assets saw its net profits and total income plummet in 2010, as impairments on investments and bad loans took their toll. However, CEO Rick Pudner is in a bullish mood as he insists the bank has rallied strongly in the wake of the credit crisis and "uncertainty" in the UAE banking sector.

"Two years on from the crisis we have a strong capital base and liquidity," he says. "Our Basel rates, loans-to-deposit ratio, liquid assets have risen appreciably during the same period, and we have improved our income generating ability as well as our efficiency as an organisation."

Emirates NBD, which was formed as the result of a 2007-announced merger between Emirates Bank Group and National Bank of Dubai (NBD), revealed on Thursday that it recorded a 30% slump in net profits for 2010, to Dhs2.34bn from Dhs3.34bn in 2009. While Q4 profit was Dhs403m in the three months to December 31, up from Dhs178m in the prior-year period, the figure still missed some analysts' forecasts for the quarter.

"We are positioning ourselves for the opportunities ahead," insists Surya Subramanian, CFO at Emirates NBD. "Overall, we have reported healthy results notwithstanding the difficult times and the provisions we've taken."

Total 2010 reported income down 10%

The bank reported total income for 2010 of Dhs9.72bn, down 10% compared to 2009's figure of Dhs10.79bn. It said it provisioned fully for its exposure to debt-laden Dubai World, and that the bank's exposure had been included in its figure for impaired loans, which declined 4% in 2010 to Dhs3.19bn, compared to Dhs3.32bn in 2009. The bank also said it added Dhs335m to portfolio impairment allowances during 2010, taking the total to Dhs2.2bn - or 1.4% of unclassified credit risk weighted assets.

The bank's investments in associates in 2010 failed to help its cause, amounting to negative Dhs1.02bn compared to a negative contribution of Dhs477m during 2009. This was due in principle, the bank said, to losses incurred by Dubai-based real estate company Union Properties, in which the bank holds a 48% stake, and for which the bank booked an impairment of Dhs360m in 2010.

Nevertheless, operating costs at the bank did drop 14% from 2009 levels and the 2010 cost-to-income ratio decreased to 31.4% from 32.9% in 2009. Deposits grew by 10% as loans declined 8% in 2010, and the loan-to deposit ratio stood at 99% at end-2010 compared to 118% at end-2009 - a liquidity boost which the banks argues will stand it in good stead moving forward.

Improved liquidity, loan/deposit ratio

"Our loans-to-deposit ratio is now below 100% for the first time since 2005," notes Ben Franz-Marwick, Head of Investor Relations at the bank. "There are some negatives and some positives, but we've generated a profit of Dhs2.3bn and delivered a return on equity of more than 10%, in a year with significant headwinds.

"We've also significantly improved the liquidity position of the bank, as net liquid assets on the balance sheet improved by about Dhs35bn during the year, which now puts us in an extremely comfortable liquidity position."

At the same time the bank has been working to de-risk its balance sheet, raising its impaired loans ratio from 1.6% in 2008 to 10% in 2010, and reducing impairments in both investment securities and associates. Central to its growth strategy, too, is the capital that the bank should raise through its proposed sale of a stake in payment arm Network International (NI) to private equity giant Abraaj Capital.