Emirates NBD to stay profitable despite competition from new, bigger rival – Moody’s

Dubai’s largest bank Emirates NBD will manage to remain profitable despite increased competition in the market from a new, larger rival and dull economic conditions in the market, according to a new report by Moody’s Investors Service.

Earlier this year, National Bank of Abu Dhabi and First Gulf Bank completed a merger to form First Abu Dhabi Bank (FAB), creating the UAE’s largest lender with assets of more than Dhs670bn.

However, competition FAB will be softened by the limited overlap in corporate lending between Dubai and Abu Dhabi – where FAB is dominant, the report said.

“Emirates NBD’s unique position as the Dubai government’s bank of choice, its large low-cost deposit base and healthy loan book will support its profitability as it negotiates the challenges of a more competitive environment, a weaker economy, and rising interest rates,” said Mik Kabeya, analyst at Moody’s.

The agency expects Emirates NBD to continue to provide financing for World Expo megaprojects backed by the Dubai government.

“A large retail branch network, and early adoption of advanced digital technology also support Emirates NBD’s franchise in the retail segment,” said Kabeya.

Meanwhile, loan book re-pricing and large low-cost deposit balances will offset pressure from rising US interest rates.

“In our view, Emirates NBD will be able to protect its profitability against rising funding costs by gradually lifting its lending rates,” stated Kabeya.

“In addition, the bank’s large pool of low-cost current and savings deposit accounts should also keep funding costs contained, since such deposits tend to exhibit stability and limited price sensitivity.”

Loan recoveries from large corporate and government related issuers will also “moderate the impact of new delinquencies” as the weaker economy hurts borrowers’ repayment capacity, particularly in the retail, and small and mid-sized corporate sectors, the report added.

Last week, Emirates NBD announced that its second quarter net profit rose 6 per cent, as net interest income grew due to loan growth and higher lending rates.

The bank made a net profit of Dhs2.02bn in the three months to June 30, compared with Dhs1.91bn a year earlier.

Read more: Dubai’s Emirates NBD posts 6% rise in Q2 profit