Emirates NBD Posts 49% Profit Jump on Network Sale

Emirates NBD; gulf bank mergers; uae bank
A customer is seen inside an Emirates NBD PJSC bank branch in Dubai, United Arab Emirates, on Sunday, Oct. 16, 2011. Photographer: Duncan Chard/Bloomberg

(Bloomberg) — Emirates NBD’s first-half profit jumped 49% as Dubai’s biggest bank benefited from the sale of a stake in its card payments processing unit.

Net income advanced to 7.48 billion dirhams ($2.04 billion) from 5.02 billion a year earlier, the state-controlled lender said in a statement. The bank made 2.1 billion dirhams from the initial public offering of Network International Holdings Plc in London. Without that, Emirate NBD’s profit rose 8%.

The earnings “surprised positively” because of the higher-than-expected gain from the Network International sale, Shabbir Malik, an analyst at EFG-Hermes Holding SAE, wrote in a note. EFG-Hermes had expected Emirates NBD to make 1.4 billion dirhams from the IPO.

The shares rose as much as 1.8% in Dubai before closing unchanged at 11.30 dirhams. They have climbed 27% this year compared with a 7.4% gain in the benchmark index.

The rise in core operating profit was “helped by loan growth, higher foreign exchange income and increased investment banking activity,” Group Chief Executive Officer Shayne Nelson said in the statement.

Key Numbers

  • Total income 9.53b vs 8.45b
  • Net interest income 6.85b vs 6.23b
  • Non-interest income 2.68b vs 2.22b
  • Impairments 1.23b vs 755m
  • Cost to income ratio 29.7% vs 31.3%
  • Net interest margin 2.77% vs 2.78%
  • Loans 337.7b at end 2Q vs 316.4b
  • Deposits 366.7b end 2Q vs 335b
  • NPL ratio 5.9% end 2Q vs 6%
  • 2Q net income 4.74b vs 2.63b
    • 2Q net income without one-time gain: 2.67b
  • 2Q impairment loss 656.3 million dirhams vs 314.6 million

Provisioning costs were higher than expected, but it’s not surprising as the bank is likely to have used the cushion from the gain on Network International to build coverage for bad loans, EFG’s Malik said.

Cost of Risk

Emirates NBD expects its cost of risk, or loan-loss provisions as a percentage of loans, to revert to a long-term level of 80 to 100 basis points this year from the 63 basis points in 2018, it said in response to questions from Bloomberg.

The results were “marginally ahead of our estimate,” Yugesh Suneja, an analyst ADCB Securities LLC, wrote in a note. “Net interest income growth moderated as expected due to lower asset yield, but non-interest income stayed above expectations.”

Emirates NBD, which is in talks to buy Turkey’s Denizbank AS, expects to close the deal in the third quarter, CEO Nelson said. The bank signed a new deal in April to buy Moscow-based Sberbank PJSC’s wholly-owned unit that could save it as much as $700 million.

The bank also took steps to reshape its wholesale banking business to improve efficiency and customer service, it said in response to questions. There were “no large scale redundancies as a result of this reorganization.”

“We maintain our margin guidance as the bank’s strong liquidity position affords the ability to retire more expensive fixed deposits,” Group Chief Financial Officer Surya Subramanian said in the statement. The bank in January set its net interest margin guidance at 2.75% to 2.85%.

Subramanian is leaving after nine years with the bank.

–With assistance from Filipe Pacheco.