Dubai: Emirates NBD on Monday reported a first half 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.
During the first half of the year, the bank’s net interest income improved 2 per cent year on year as loan growth more than offset net interest margin contraction. Non-interest income remained flat as higher core fee income, particularly from foreign exchange, helped offset lower income from the sale of properties, the bank said in a statement.
Hesham Abdulla Al Qasim
“Emirates NBD continued to deliver further improvements in asset quality, whilst strengthening its structural liquidity and capital ratios,” said Hesham Abdulla Al Qasim, Vice-Chairman and Managing Director, Emirates NBD.
Gross loans grew 6 per cent since end 2015 with good growth in corporate and Islamic financing.
Islamic financing grew 12 per cent since end 2015 due to growth in the trade and services sectors, and retail. Corporate lending grew 5 per cent since end 2015 due to growth in trade and manufacturing sectors and consumer lending grew 3 per cent. Deposits increased 8 per cent year on year.
The bank’s provisions of Dh1.45 million improved 27 per cent year on year as cost of risk continued to normalise on the back of improving asset quality metrics.
Non-performing loans (NPL) ratio improved to 6.6 per cent and coverage ratio strengthened to 118.5 per cent as at June 30, 2016. Net interest margins (NIMs) declined to 2.58 per cent as loan spreads did not keep pace with the higher cost of deposits.
Dubai based Arqaam Capital said Emirates NBD’s second quarter earnings were above their expectations by 6.8 per cent on better credit costs whilst revenue marginally lower on margin compression.
“We find it a good set of numbers driven by strong growth and benign credit costs. With the Expo 2020 project awards, we expect ENBD to be one of the key beneficiaries in Dubai,” Arqaam analysts said in a note
For the second quarter of the year Emirates NBD’s provisions improved by 30 per cent year on year and 25 per cent quarter on quarter to Dh626 million as higher write-backs and recoveries helped to improve the overall NPL ratio to 6.6 per cent and coverage ratio strengthened to 118.5 per cent.
“The Group’s improved and resilient financial profile was also reflected in the recent upgrade of Emirates NBD’s long-term rating to A3 by Moody’s, said Group Chief Executive Officer, Shayne Nelson.
“Whilst we remain cautiously optimistic for the remainder of 2016, I am confident that our prudent business model shall enable us to deal with the opportunities and challenges that will present themselves,” he said.
The bank’s NIMs declined to 2.58 per cent in the first half 2016 and to 2.55 per cent in the second quarter as loan spreads declined on retail and Islamic products as loan margins did not keep pace with rising EIBOR rates. The bank said deposit spreads improved quarter on quarter as strong current and savings account (CASA) balances helped offset higher EIBOR rates and declined marginally due to higher fixed deposit balances.
During the first six months of the year costs grew 11 per cent year on year on the back of late 2015 growth in anticipation of increased business volumes, which has since been contained in light of the new economic reality.
Staff costs are now falling as cost control measures implemented in the first quarter of this year take effect. Cost trends are within guidance and continue to be tightly managed, the bank said.
The bank continued to reinforce its liquidity position in the first half of the year with term funding now representing 12 per cent of total liabilities.
“During the first half of 2016, we took advantage of favourable market conditions to prudently raise over Dh14 billion of term funding, further boosting our structural liquidity,” said Group Chief Financial Officer, Surya Subramanian
As at June 30 2016, the bank’s capital adequacy ratio and Tier 1 capital ratio were 20.5 per cent and 17.8 per cent respectively.