UPDATE 2-Booming Dubai boosts lender ENBD's Q1 profit but bad loans drag

Thu Apr 24, 2014 9:36am EDT

Related Topics

* Q1 net profit 1.04 bln dhs vs 837 mln dhs yr-ago -statement

* Higher interest, fee income cited for profit rise

* Profit hike despite 43 pct y-o-y jump in provisions

* To continue building towards 80 pct coverage ratio -CEO

* Better economy to aid this without need for cash provisions (Recasts, new content throughout)

By David French

DUBAI, April 24 (Reuters) - Emirates NBD expects the buoyant local economy to keep boosting its profits and allow the bank to build up its bad loan coverage ratio without the kind of severe provisioning which stymied recent earnings, its CEO said on Thursday.

Dubai's largest lender beat analysts' forecasts with a 25 percent jump in first-quarter net profit to 1.04 billion dirhams ($283.7 million) as higher interest and fee income outstripped a jump in provisions.

The result maintained the impressive profit growth posted by banks in the United Arab Emirates so far for the first quarter as they enjoy a rebound in the local economy which is improving the finances of their clients - whose bad debts and billion-dollar restructurings were weighing on the banks.

Dubai's tourism, transport and logistics sectors are booming along with the stock market - up more than 50 percent since the turn of the year - and real estate prices - up 33 percent in the last 12 months.

"We are confident the bank can capitalise on the opportunities in the local economy for the benefit of the bank and its shareholders," ENBD chief executive Shayne Nelson told reporters on a results call, adding it expected Dubai's GDP to grow 4.7 percent in 2014.

Healthy growth in both net interest and non-interest income, which climbed 28 percent and 25 percent respectively, accounted for the rise in first-quarter profits, the bank said.

Non-interest income, which climbed to 1.1 billion dirhams, was a reflection of the booming economy. Brokerage fees rose 86 percent year-on-year and banking fee income - aided by higher credit card activity - gained 44 percent on last year.

Income from property nearly tripled on the same period last year, which chief financial officer Surya Subramanian attributed to the bank selling off real estate it received from Union Properties under previous debt-for-asset swap arrangements.

Finalising this portfolio sell-off would generate revenue for the bank over the next few quarters, he added.

ENBD's first-quarter profit would have been greater if it were not for the 43 percent year-on-year jump in provisioning.

The bank is targeting an 80 percent coverage ratio in the next couple of years, which would bring it closer to regional peers after suffering more than most from soured debts related to Dubai's 2009 crash.

The bank set aside 1.27 billion dirhams in the three months to March 31 to cover bad loans, which it attributed to continued conservative provisioning to increase its coverage ratio - which rose to 60.7 percent at March 31, up 3.6 percent since end-2013.

Provisions have been a major drag on the bank's earnings in recent years and have remained high despite the improving local economy.

However, better economic conditions mean indebted borrowers will find it easier to repay their existing obligations, which in turn should help ENBD to recover bad loans and improve its coverage ratio without resorting to setting aside more cash.

($1 = 3.6730 UAE Dirhams) (Additional Reporting by Olzhas Auyezov; Editing by Sophie Walker)

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