July 24, 2014 / 5:56 AM / in 3 years

UPDATE 2-Dubai lender ENBD trims loan growth f'cast despite bumper Q2 profit

* 2014 loan growth forecast cut to 4-5 pct from 7-8 pct - CFO

* 2014 NIMs revised up to 2.7-2.8 pct from 2.5-2.6 pct

* Q2 net profit 1.31 bln dirhams vs 972 mln dirhams year-ago

* Beats estimates as higher income outstrips more provisions

* Q2 impairments 1.34 bln dirhams, up 34.4 pct year/year (Recasts, adds call details, context)

By David French

DUBAI, July 24 (Reuters) - Emirates NBD trimmed its 2014 loan growth forecast but raised its expectations for how much lending would earn it this year after reporting an estimate-beating 34.8 percent jump in second-quarter net profit on Thursday.

Dubai’s largest lender expects to see its lending grow by 4 to 5 percent this year, finance head Surya Subramanian told reporters on a results call. This is down from the 7-8 percent that the bank forecast at the start of the year.

“This change is made considering current lending levels and the intense competition in the market,” Subramanian said. ENBD’s total loans grew just 1.4 percent since the end of last year.

Despite the reduction in the amount of lending it expected to do, ENBD raised its forecast for net interest margin, or NIM - the amount it makes on its lending above the original cost of funds - to 2.7 to 2.8 percent from 2.5 to 2.6 percent.

Subramanian said NIMs had stabilised around their current level of 2.77 percent, despite competitive pressures, enabling the bank to revise up its guidance.

Banks in the United Arab Emirates have been enjoying bumper profits in recent quarters as the sector benefits from strong domestic economic conditions. A poll of economists expects GDP growth this year of 4.3 percent in the UAE.

However, with 52 banks operating in the Gulf Arab nation, competition is fierce and lenders have been looking to diversify away from traditional revenue streams, dominated by local lending, into fee-based services and through acquisitions in other countries.

ENBD, which bought BNP Paribas’s Egyptian business last year, made 1.31 billion dirhams ($357 million) of profit in the three months to June 30, up from 972 million dirhams in the same period last year.

The figure was well ahead of the consensus view of analysts polled by Reuters, who expected ENBD to make 1.09 billion dirhams in the quarter.

The bank’s stock rose 4.2 percent against a 0.3 percent decline for the wider Dubai market.


Profit was boosted by strong year-on-year growth in both net interest income, up 21.6 percent to 2.33 billion dirhams, and non-interest income, 37 percent higher at 1.38 billion dirhams.

ENBD’s higher quarterly profit also came despite another significant jump in provisioning, which leapt 35 percent year-on-year to 1.35 billion dirhams.

Impairments have been a major drag on the bank’s profits in recent years as the bank suffered from its exposures to the debt of local sovereign-linked firms that were forced to restructure and the local property market, which crashed at the end of the last decade but which has rebounded in the last two years.

Much of the provisioning in the last two quarters has been towards boosting the bank’s bad loans coverage ratios.

This improved to 64.7 percent at end-June, up from 52.7 percent at the same point of 2013 and 4 percentage points higher than the figure at the end of the first quarter.

Chief executive Shayne Nelson had said in April that the buoyant local economy would allow it to keep boosting profits and its bad loan coverage ratios without the need for severe provisioning.

Despite the large hike in provisions in the latest results, Nelson said he was happy with the bank’s current performance, which was allowing it to address any concerns it was facing due to legacy issues. ($1 = 3.6730 United Arab Emirates Dirhams) (Additional Reporting by Archana Narayanan; Editing by Andrew Torchia)

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