190127 emirates nbd
Impairments took a bite out of Emirates NBD first six month results. Image Credit: Gulf News Archive

Dubai: Emirates NBD has reported Dh4.1 billion as net profit for the first six months of 2020, down 45 per cent year-on-year. It attributed the lower profits to higher impairment charges and the absence of a one-off gain on disposal of a stake in Network International last year.

Excluding the gain from Network International sale, the bank’s net profit was down 24 per cent year-on-year. Total income for the first-half amounted to Dh12.62 billion, an increase of 33 per cent, compared with Dh9.52 billion during the same period in 2019.

Net interest income improved 36 per cent year-on-year to Dh9.3 billion supported by loan growth and higher margins from DenizBank. This measure remained unchanged over the preceding half-year as lower interest rates and customer relief measures in the second quarter offset the positive impact from the acquisition of Turkey's DenizBank.

Non-funded income improved 24 per cent on the back of higher core fee income from DenizBank, but declined 7 per cent over the preceding half-year due to lower business activity during the COVID-19 shutdown.

The bank said it proactively reached out to customers affected by the pandemic. “Support has now been provided to approximately one-tenth of our customers primarily through the deferral of over Dh8 billion of interest and principal for periods of up to six months. In addition, we have waived certain fees to help individuals and businesses cope with the disruption,” said Shayne Nelson, Group CEO.

Balance-sheet resilience

The bank said its first-half performance was resilient given the significant impact of the challenging operating environment through the second quarter.

“Margins declined in Q2-20 as lower interest rates fed through to the loan book. We are acting to manage costs to reflect lower levels of economic activity - albeit cost reduction will not entirely offset lower levels of income,” said Patrick Sullivan, Group Chief Financial Officer.

Emirates NBD’s total assets at Dh694 billion was up 2 per cent at the close of the first-half from end 2019. Loans increased 1 per cent while deposits are down 2 per cent since the beginning of the year.

Costs amounted to Dh3.99 billion, an increase of 42 per cent year-on-year with the inclusion of DenizBank. Costs improved 1 per cent year-on-year excluding DenizBank. The cost-to-income ratio at 31.7 per cent is expected to increase in the second-half towards the 33 per cent management guidance.

Asset quality

During the first-half, the non-performing loan ratio increased to 5.8 per cent. The impairment charge of Dh4.2 billion is 243 per cent higher year-on-year due to higher Stage 1 and 2 expected credit loss (ECL) allowances as per the IFRS-9 reporting standards.

Liquidity and capital

Liquidity remains strong with the liquidity coverage ratio at 152.5 per cent as at June 30, and the advances-to-deposits ratio at 96.1 per cent. In the first-half, the group raised Dh10.9 billion of term debt, including two benchmark senior public bond issues and Dh7.3 billion of private placements with maturities up to 20 years.

As at June 30, the group’s common equity tier 1 ratio is 15.3 per cent, tier 1 ratio is 17.3 per cent and capital adequacy ratio is 18.5 per cent.

The bank expects to see economic revival supporting the business in the second half of the year. “The economic improvement is reflected in the UAE headline PMI which rose to 50.4 in June, the first reading in expansion territory this year,” said Hesham Abdulla Al Qassim, Vice-Chairman and Managing Director, Emirates NBD.