Dubai lender Emirates NBD Q3 net profit slips as bad debts weigh on Islamic banking unit

Emirates NBD, the UAE’s biggest bank by assets, said its third-quarter profit slipped 1 per cent as money set aside for bad debt at its Islamic banking unit increased.

Net income declined marginally to Dh1.664 billion from Dh1.673bn, missing the expectations of analysts. Net interest income was also down a touch at Dh2.55bn in the quarter from Dh2.59bn in the same period last year, while net fee and commission income also fell 6.4 per cent to Dh649.1 million versus Dh693m.

Overall impairment allowances declined to Dh728.6m in the third quarter from Dh821.7m in the same period last year. But Emirates Islamic Bank was hit as small and medium-sized enterprises (SMEs) struggled to pay back debt.

Emirates NBD’s Islamic unit reported a jump in provisions to Dh454.6m versus Dh246m a year ago, leading to a loss of Dh30.8m in the quarter from a profit of Dh86.9m in the same period last year.

“Whilst we have seen increased delinquencies in the micro SME segment, which has prompted Emirates Islamic to take additional provisions, the group’s overall credit quality continues to improve,” said Shayne Nelson, the bank’s chief executive.

“Both Dubai and Emirates NBD are well placed to deal with the regional challenges stemming from a lower oil price environment. The bank’s strong balance sheet will enable us to benefit from Expo2020 and other regional opportunities for growth.”

Five analysts polled by Bloomberg had estimated third-quarter earnings for Emirates NBD at Dh1.826bn.

“Results were a mixed bag,” said Shabbir Malik, a Dubai-based banking analyst at EFG Hermes. “ENBD’s earnings missed our expectations mainly due to weak revenue as spreads came under pressure and fee income was subdued. Provisioning at Emirates Islamic Bank, ENBD’s Islamic subsidiary, nearly doubled.”

Over the past two years, Emirates NBD has been among the bigger banks that have held their own amid the economic slowdown triggered by the more than 70 per cent collapse in the price of oil. While it has been shielded by diverse sources of income and international subsidiaries, the fallout in bad debt among SMEs is now catching up with some of its subsidiaries.

Amid the economic slowdown, many small businesses have found themselves unable to repay debt as their clients delay payments. In November last year, the head of the UAE Banks Federation, Abdul Aziz Al Ghurair, estimated that up to Dh5bn of debt had been abandoned by business owners gone bust who had fled the country.

Since then, however, the Government has accelerated its efforts to pass a new bankruptcy law that will prevent businessmen from being jailed for defaulting on debt. The Federal Cabinet approved a draft of the law on September 4.

Things for banks may get worse before they get better as growth slows as compared with the last two years. Emirates NBD is forecasting that economic growth will slow to 3 per cent this year from 3.8 per cent.

“Lower oil prices are likely to contribute to a tighter fiscal policy and slower growth in the non-oil sector,” the bank said.

“Higher interest rates and a strong dollar will continue to pose headwinds to non-oil growth, particularly in the services sector.”

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