Provisions push NBAD profit down to Dh927m

Dubai: National Bank of Abu Dhabi (NBAD), the UAE's second-biggest bank by assets, yesterday reported a net profit of Dh927 million for the first quarter of 2011, down 10 per cent compared to the corresponding quarter in 2010.

The latest result missed analysts' expectations. While EFG-Hermes had estimated profit of Dh950 million, Shuaa Capital has forecast a profit of Dh959 million and Kuwait-based Global Investment House had forecast Dh982 million.

"Despite NBAD's good performance, we remain cautious to the challenges posed by the regional and global environment," said Nasser Al Sowaidi, Chairman of NBAD.

The bank attributed the decline in profit to higher provisions. "Although net profits for the current quarter are below the first quarter of 2010 as a result of higher provisions, top line revenues, operating profits, assets, loans and deposits are all at record levels," said Michael Tomalin, NBAD's chief executive. Operating income for the quarter reached Dh1.88 billion, up 6.2 per cent compared with Dh1.77 billion for the corresponding period of 2010.

Net interest income

Net interest income and net income from Islamic financing contracts for the quarter rose 11.2 per cent to Dh1.37 billion compared with first quarter of 2010 while non-interest income was lower by 5.6 per cent Dh503 million.

Net interest margin was 2.48 per cent, almost matching the levels recorded in the same quarter last year.

Operating expenses for were Dh566 million, higher by 14.6 per cent compared with the corresponding period, but lower by 10.4 per cent compared to the last quarter of 2010.

The cost to income ratio was 30.1 per cent for the first quarter of 2011. The ratio remains below the group's medium-term cap of 35 per cent. "Expenses rose faster than revenues on continued investments in branch network, systems and staff, resulting in an increase in cost/income ratio but they were better contained than our forecasts," said Jaap Meijer, head of the bank team, AlembicHC. The gross impairment charge for the quarter was Dh446 million, which after Dh81 million of recoveries reduced to a net charge of Dh 365 million, comprising collective provisions of Dh84 million, net specific charges of Dh261 million and other provisions for impaired assets of Dh20 million.

NBAD's total assets grew 16 per cent year-on-year to Dh233.5 billion. Overall lending rose 4.7 per cent to Dh143.2 billion from December, while deposits increased 14.6 per cent to Dh141.1 billion.

Analysts said the balance sheet growth achieved by the bank reflected the strong commercial momentum. "Outstanding loans moved up 7.2 per cent year on year. Customer deposits moved up sharply by 23 per cent, and as a result loan-to-deposit ratio fell to 101 per cent from 114 per cent year end 2010," said Meijer.

"Although net profits for the current quarter are below the first quarter of 2010 as a result of higher provisions, top line revenues, operating profits, assets, loans and deposits are all at record levels," said Tomalin,

"We believe that the bank is very comfortably liquid at current levels and may hint at healthier than expected loans disbursement going forward. However, a close eye needs to be kept on asset deterioration," said Naveed Ahmad, senior financial analyst, Global Investment House Kuwait.

In numbers: Cautious outlook

• 14.6% rise in operating expense for first quarter
• 101% fall in loan-to-deposit ratio of the bank