Dubai lender Emirates NBD posts flat Q3 net profit

Dubai’s largest lender, Emirates NBD (ENBD), reported a slightly lower-than-expected third-quarter net profit as net interest income slipped and costs rose.

The quarter marked an end to 16 straight quarters of a rise in earnings for the bank, as net profit dropped 1 per cent, signaling the fallout from a growth slowdown in Dubai’s economy.

The lender’s earnings also took a hit from additional provisions set aside for Emirates Islamic, its sharia-compliant arm, to cover bad loans in the small- and medium-sized enterprise sector.

The bank made a net profit of Dhs1.66bn ($452m) in the three months to Sept. 30, compared with Dhs1.67bn a year earlier, according to financial statements.

Three analysts on average forecast the bank would make a net profit of Dhs1.88bn for the quarter.

Net interest income fell 2 per cent in the third quarter from a year earlier due to higher cost of fixed deposits and wholesale funding, the bank said.

Costs rose 8 per cent in the quarter as the bank invested more in its businesses late last year in anticipation of higher volumes, the lender said in an investor presentation. However, it said the growth had since been “contained” in light of the “new economic reality.”

The bank, which has close ties to the Dubai government, has experienced an improvement in its asset quality since a debt crisis and property crash in Dubai at the end of the last decade.

That trend continued during the quarter as its non-performing loans ratio, which reached a peak of 14.3 per cent in 2012, fell to 6.4 per cent during the third quarter.

Performance was also boosted by a 5 per cent climb in non-interest income due to higher core fee income and a 11 per cent drop in provisions, helped by further writebacks and recoveries on bad debt, it said.

The bank, 55.6 per cent owned by state fund Investment Corp of Dubai, reported a net profit of Dhs5.38bn for the first nine months of 2016, up from Dhs4.99bn in the same period a year earlier.

The bank and its subsidiaries have adjusted to slower growth in the local economy. Emirates Islamic has laid off around 300 people this year and made around 100 people redundant from another subsidiary.