Dubai: Emirates NBD, one of the Gulf banks most exposed to indebted Dubai World, missed analysts’ forecasts as its quarterly profit more than halved due to higher bad loan provisions, sending its shares lower.
ENBD, the biggest bank by assets in the United Arab Emirates, posted a 53-percent fall in second-quarter profit to AED398 million ($108.4 million) from AED852 million in the same quarter in 2009.
Analysts polled by Reuters had estimated an average profit of AED736 million.
Shares in ENBD were down 1.6 percent. The stock has dropped around 15 percent in the past three months, in line with the Dubai bourse’s performance.
ENBD is one of two local banks that sits on a seven-member committee handling debt talks between Dubai World, the state conglomerate which is restructuring billions of debt, and the rest of its lenders.
The bank never revealed its exact exposure to Dubai World but committee members hold 60 percent of the conglomerate’s $14.4 billion debt pile.
Also on the committee are HSBC, Lloyds, Royal Bank of Scotland, Standard Chartered, Bank of Tokyo Mitsubishi and Abu Dhabi Commercial Bank.
Dubai-based ENBD said the Dubai World restructuring is advancing "satisfactorily" and that it hasn’t booked any specific provisions or non-performing loans related to the conglomerate.
ENBD has "put it under general provisioning rather than specific as in the strictest sense the negotiations are still under way and the banks are not yet required to provide for it as such," said Janany Vamadeva, banking analyst at HC Brokerage.
"We believe ENBD has provided for the bulk of its exposure (to Dubai World) during this quarter," she said.
The United Arab Emirates central bank in April told local banks they "are not required to provision their related exposure to Dubai World" and that it would "provide further guidance to banks concerning the treatment of Dubai World debt in their books."
ENBD, majority-controlled by Dubai, said its non-performing loan ratio rose to 2.88 percent from 2.36 percent at the end of 2009. Its net impairment loss inched up to AED1.19 billion from 1.15 billion in the same period in 2009.
Dubai World on July 22 presented more details of its restructuring plan to creditors and warned it would use a special tribunal set up by decree to force any recalcitrant lenders back in line.
Net interest income and income from Islamic financing during the quarter rose marginally to AED1.72 billion.
"The result is below expectations, but that is mainly due to the higher loan loss surprise and not on the core activities side," Vamadeva said.
ENBD said "economic activity and credit expansion in the second quarter (was) relatively subdued as a result of renewed global uncertainties."
The bank booked a AED36.7 million net loss on trading securities compared to 132 million net gain in the year-ago quarter.
Emirates said it had provided for around two thirds of its exposure to Saad and Al Gosaibi, two troubled Saudi conglomerates. The bank holds around $350 million in exposure to the two firms.