UAE banking sector on the rise as Emirates NBD reports 85% increase in Q2 profits (page 1 of 2)

Emirates NBD CEO Rick Pudner said that the UAE's biggest bank by assets is on its way to recovery, on the day that the bank reported an 85% rise in net profit for Q2 2011, compared to the previous quarter. The three month period also saw loan loss provisions drop and income from investments rise, two years after exposure to Dubai's debt-laden conglomerates prompted a surge in non-performing loans (NPLs) and provisions.

The bank's net profit hit AED2.157bn ($587m) in H1 2011, up 43% from H1 2010, while net profit for Q2 2011 was detailed as AED744m, up 85% from the year-earlier quarter. The news will have pleased stockholders, who have already seen Emirates NBD shares rise more than 50% this year, outperforming the benchmark which is down 6.7% year-to-date.

"We signalled at the beginning of the year and again at the end of the first quarter, that our strategic focus was shifting gradually from strengthening the bank, to growth acceleration," said Pudner in a conference call.

"The results in the first half of the year clearly demonstrate this through the evident acceleration of investment in future growth, through increased top-line momentum across both net interest income, and fee income categories."

Emirates NBD loan-to-deposit ratio improves in H1

The bank said that customer loans declined by 2% over the first six months of the year, to AED193.2bn, but that customer deposits remained stable at AED200.5bn. It also reported that its loan-to-deposit ratio had improved in H1 2011 to 96% from 99% at the end of 2010. The bank added that costs in H1 2011 amounted to AED1.634bn, an increase of 4% from H1 2010, while the cost-to-income ratio jumped 1.6% from H1 2010, to 33.8%. It noted, however, that the ratio improved on a quarterly basis, to 32.1% in Q2 2011 from 35.7% in Q1 2011.

"The key focus of the bank has increasingly shifted towards revenue generation and future growth, and as a result, we have seen an increase in the absolute levels of costs," explained Ben Franz-Marwick, head of Investor Relations at the bank. "We've continued the expansion of our distribution capability, opening six new branches across the UAE, and we have further expanded our private banking and SME banking teams, with the addition of another 30 relationship managers.

"Our sales force in the consumer banking division has effectively doubled in size over the last six months, and we continue to invest in our brand through advertising and marketing," he continued.

"While these investments resulted in an initial pickup [in cost-to-income ratio] in the first quarter, this has now started to improve, in line with our expectation of managing the ratio down to our target range of between 32% and 33%."

Emirates NBD said its total capital adequacy ratio and Tier 1 capital ratio continued to strengthen over the first six months of the year, to 21.2% and 13.4% at the end of H1 2011 from 20.1% and 12.8% respectively at end-2010. It attributed the increase to strong profit generation over the six months, as well as a 2% reduction in risk weighted assets over the period.

Total income reaches AED4.834bn for H1

The bank recorded total income of AED4.834bn in the first half of the year, compared to AED4.870bn in H1 2010 and AED4.851bn in the second half of last year. Net interest income declined 2% to AED3.379m from AED3.452bn in the H12010, but was up slightly from AED3.343bn in H2 of last year.