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Emirates NBD's second-quarter profit surges on asset sale, forex gains

DUBAI (Reuters) - Emirates NBD ENBD.DU, Dubai's largest bank, on Wednesday reported an 80% rise in second-quarter net profit helped by the sale of a stake in Network International NETW.L and strong non-interest income on foreign exchange gains.

FILE PHOTO: Emirates NBD bank is seen in Mall of Emirates in Dubai, United Arab Emirates, December 30, 2018. REUTERS/ Hamad I Mohammed/File Photo

The result included a gain of 2.1 billion dirhams ($572 million) from the sale of a stake in digital payment provider Network International in an initial public offering in London in April.

The earnings showed that top banks in the United Arab Emirates have still withstood strains from a sluggish economy and a property downturn in Dubai.

Second-quarter net profit jumped 80% to 4.74 billion dirhams. EFG Hermes had expected a net profit of 4.06 billion in the second quarter.

The bank said net interest income rose 6% in the second-quarter from a year earlier, as growth in assets offset a drop in net interest rate margins.

Non-interest income surged 23%, helped by gains in foreign exchange income and investment banking activities.

Provisioning for bad debts more than doubled to 656 million dirhams in the second quarter from a year earlier.

The bank said cost of risk had increased in 2019 to a more normalized level from relatively better credit quality conditions in 2018.

Cost of risk reflects the price a lender pays to manage its risk exposure. In 2018, Emirates NBD signaled that it expected cost of risk to revert to a long-term level of 80-100 basis points from the 63 basis points seen in 2018.

“The increased cost of risk of 82 basis points in H1 2019 is a result of an expectation of a reversion of credit quality to more normalized levels from the benign conditions in 2018, coupled with the expectation of lower write-backs and recoveries,” it said.

Credit-rating agency Moody’s had warned earlier this year provisioning charges for top banks in the United Arab Emirates (UAE) will increase in 2019 owing to pressure in the property and the retail sectors.

The Dubai lender said its net profit surged 49% in the first half of the year.

“Core operating profit advanced 8% compared to the first half of 2018, helped by loan growth, higher foreign exchange income and increased investment banking activity,” the bank’s chief executive Shayne Nelson said in a statement.

He said the bank continued to make progress on the acquisition of Turkey's Denizbank DENIZ.IS and expects this transaction to close in the third quarter of 2019.

Emirates NBD said in April it was buying Denizbank from Russia's Sberbank SBER.MM at a roughly 20% discount to a previously agreed price, after a steep fall in the Turkish lira.

Emirates NBD's shares were up 0.4% in late morning trade, outperforming the broader Dubai index .DFMGI, which was down 0.1%. The stock is up 28% year-to-date.

Reporting by Saeed Azhar; Editing by Gopakumar Warrier/Christopher Cushing/Jane Merriman