Emirates NBD, the UAE's biggest lender by assets on Monday reported a net profit of Dh744 million in the second quarter of the year, up 85 per cent compared to Dh403 million reported in the same period last year.
The bank's net profit for the first half of 2011 was up 43 per cent at Dh2.2 billion.
Net interest income for the second quarter of 2011 was up 5 per cent compared to the same quarter in 2010 resulting from improved net interest margin while the non-interest income grew 43 per cent to Dh843 million compared with Dh591 million reported in the second quarter of 2010.
"These strong results for the first half of 2011 highlight the strength and success of Emirates NBD. We will move forward to achieve the ambitious vision of Dubai as a financial, commercial and international tourism hub, where Emirates NBD holds a leading position," said Shaikh Ahmad Bin Saeed Al Maktoum, Chairman of Emirates NBD, in a statement.
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The bank said yesterday that the first half of 2011 witnessed improving trends in credit quality as the rate of new impaired loan formation and the required specific provisioning continued to decline.
The impaired loans ratio improved by 1.1 per cent during the second quarter resulting primarily from the de-recognition of a previously impaired corporate account due to the finalisation of the facility's restructuring on commercial terms.
While the impairment charge in the first half of 2011 increased to Dh2.35 billion compared to Dh1.74 billion in the first half of 2010, this was primarily driven by a conservative addition of Dh1.6 million to portfolio impairment allowances during the first half of 2011 to cover future contingencies.
"All the provisions taken during the quarter were collective in nature, taken out of prudence to cover future contingencies. No addition was made to specific provisions, which is understandable since the bank saw a 110bps decline in its NPL ratio from 2010 levels due to de-recognition of a previously impaired loan once it was restructured on commercial terms," said Naveed Ahmad, a senior financial analyst with Global Investment House.
This takes total portfolio impairment allowances to Dh3.8 billion or 2.4 per cent of unclassified credit risk weighted assets. The provisions coverage of impaired loans improved to 55 per cent from 45 per cent at the end of the first quarter. However, bank officials said they expect the total provisions for the year to be in the range of 13 to 14 per cent of the total assets.
"We continue with our prudent approach to stabilising our balance sheet. Continuation of our policy of balance sheet de-risking through increased portfolio impairment allowances to cover future contingencies," said Rick Pudner Emirates NBD's Chief Executive Officer.
The bank's net interest margin of 2.53 per cent in the second quarter improved by 12 basis points. The non-interest income improved 43 per cent year on year on high investment in securities income and Dh160 million gains from a debt exchange offer.
Non-interest income increased 43 per cent, helped by substantial other income (Dh160 million gain on debt exchange, Dh101 million investment securities and Forex, rates and other income of Dh176 million). We view the realised capital gains on debt securities (Dh261 million) as non-recurring items," said Jaap Meijer, Head of Banks Research at HC securities.
Despite the presence of one-off items in the non-interest income, bank officials insisted that the performance is sustainable.
"We have a few non-recurring items in the result in this quarter. But considering the size of our balance sheet and the prudent approach to balance sheet health we may have a few more rabbits in our hat," said Emirates NBD's Chief Financial Officer Surya Subramanian.
While the officials recognise a sustained improvement in loan demand, loan growth projections were revised to 2 per cent from an earlier projection of 3 per cent. The bank said it is looking at expanding its private banking and wealth management operations in Saudi Arabia.
Pudner said the bank's debt maturity profiles are within its existing funding capacity and the bank is watching the market for alternate funding options through medium term bond issuance.