Dubai: Emirates NBD, the largest bank in the UAE in terms of deposits, loans and branches, is well positioned to weather the tightening of liquidity, according to rating agency Moody’s.
The large retail franchise within the diversified Dubai economy and broad debt market access places the bank in a stronger position than most UAE peers to sustain the ongoing liquidity tightening in the region caused by low oil prices, said Moody’s Investors Service in a report published on Wednesday.
The bank reported a net profit of Dh3.71 billion for the first six months of 2016, up 12 per cent year on year. For the second quarter of the year, the bank’s net profits improved 16 per cent year on year and 6 per cent quarter on quarter to Dh1.91 billion.
Emirates NBD has a long historic relationship with Dubai government-related entities (GRIs) and large conglomerates. These entities and ENBD are mainly exposed to the Dubai economy, which is more diversified and hence less oil-dependent, especially on the liability side. This leaves the bank less vulnerable to the pressure arising from reduced inflows of government-related deposits.
“The bank benefits from being mainly exposed to the diversified Dubai economy, which leaves it less vulnerable to the funding pressure arising from lower oil prices that have affected some regional peers as lower oil revenues have translated into lower government deposit inflows in the banking system,” says Olivier Panis, vice-president, senior Credit Officer at Moody’s.
The rating agency expects that ENBD’s retail franchise, the largest in the UAE, will continue to provide the bank with a competitive edge in terms of stable, granular and low-cost current and saving account funding base, which benefits both the funding and profitability profiles of the bank compared with many regional peers.
Despite the reduced liquidity flows and economic slowdown observed in the GCC over 2015, ENBD still managed to expand its deposit base by 11 per cent versus the 4 per cent average achieved by other banks in UAE, underpinning its leading deposit franchise. This allowed the bank to grow its lending activity above that of the market rate, while simultaneously reducing its loan-to-deposit ratio.
“We expect these funding strengths will continue to provide the bank with a competitive edge, in terms of stable funding base and low cost of funds over many regional peers,” said Panis.
The bank has also diversified its access to market funding, through various maturities, instruments, currencies and sources it can use if required. This is providing a greater protection against any further liquidity pressure that could materialise in the region.
With customer deposits representing around 70 per cent of its liabilities, Emirates NBD is less dependent on confidence-sensitive market funding than its domestic and global peers. At the end of 2015, market funding represented 14.1 per cent of its tangible assets and 16.3 per cent as of June 2016 versus 17.9 per cent for UAE peers and 19 per cent for similarly rated global peers.
“We consider the bank’s diversified retail deposit base as a source of funding stability, which combined with the low dependence on large government deposits described above, provides ENDB with a competitive advantage in the case of prolonged liquidity tightening in the UAE,” Panis said.
