Emirates NBD sees 'uncertain year' ahead

LOOKING ABROAD: NBD will seek regional expansion opportunities after profits surge by over one-third. (Getty Images)

Emirates NBD, the Gulf's largest bank which on Wednesday posted a 35% rise in 2007 profit, said 2008 is likely to be uncertain as volatility in global markets impacts the world's largest oil-exporting region.

The bank, which the Dubai government formed in October by combining Emirates Bank International and National Bank of Dubai (NBD), said it would look to borrow this year to help finance more corporate and retail lending.

"It is going to be more of an uncertain year," Chief Executive Rick Pudner said in a conference call on Wednesday. "It is a positive picture but it will be a bit more of a confused year."

Net income grew 35% to 3.95 billion dirhams ($1.08 billion) last year, the bank said earlier.

Loans surged 48% to 152 billion dirhams. Costs rose 51% to 2.72 billion dirhams as the bank spent more on infrastructure, Pudner said.

"There will be borrowing during the year," Pudner said of the bank's combined $9.8 billion euro medium-term note programme. "We have parts of our EMTN programme falling off; we need to replenish those."

International lenders such as Citigroup have written down more than $80 billion in credit-market losses since October because of defaults on subprime mortgages. That has made banks more reluctant to lend, and credit more difficult and expensive to secure.

Spreads on more than $15 billion of Islamic bonds on the HSBC-DIFX GCC Sukuk Index, for example, more than doubled to 217 basis points from June to January 23.

Emirates NBD has no "direct" exposure to subprime mortgages, though its "indirect" exposure through financial investments is between $10 million and $15 million, Chief Financial Officer (CFO) Sanjay Uppal said on the conference call.

Shares of Emirates NBD were up 0.34% at 0942 GMT, the second-biggest gainer among financial stocks on the Dubai index, which was up 0.64%. The stock is up about 3% this year.

Gulf Arab states have reaped a windfall from oil prices that have risen almost five-fold in the last six years, spurring economic growth, and more business for local and international lenders.

The UAE economy, the second-largest in the Arab world, probably grew about 7.8% last year and may grow at the same rate this year, according to a survey by newswire Reuters of economists in December.

The UAE central bank has been cutting interest rates in tandem with the US Federal Reserve to deter bets on an appreciation of its dollar-pegged dirham, ignoring surging inflation. Inflation hit a 19-year high of 9.3% in 2006.

"The lower interest rate environment will stimulate demand for loans in the corporate and retail sector," Pudner said. "We remain cautiously optimistic about the economic scenario in 2008 given what's going on in the markets around the world and the interest rate environment."

The bank, whose assets grew 53% to 253.8 billion dirhams in the year to December 31, proposed a cash dividend of 35 fils per share and 15 free shares for every 100 investors hold.

Fourth-quarter profit of 1.38 billion dirhams, which Reuters calculated based on previous financial data, beat two analysts' forecasts in a Reuters survey from December.

Emirates NBD wants to expand within the UAE, including in Abu Dhabi and Sharjah, and "strengthen" its presence in Saudi Arabia and Qatar, Pudner said.

The lender is looking to enter other markets in the region, though it is not in any talks to make acquisitions, he said, without being more specific. (Reuters)

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READERS' COMMENTS

NBD profits spike 35%
Posted by Firozali A., Dubai, UAE on Wednesday 13 February 2008 at 11:13 UAE time

The banks have the biggest benefit of creating money, may be many wonder at the phrase, creation? Well there it is. All banks chart out the way in the following manner. This is not new and not an illegal practice. It has been with us for years.
If you deposit 20,000 in a branch one a bank call this for our example XYZ Bank. The head office has to have this cash for liquid ratios. So the branch transfers this to the head office. How much have you deposited? 20,000. How much has the XYZ Bank in the books? 20,000 in the branch, you deposited and 20,000 in the head office that the branch sent. One is a simple creation in the book but if you vet this with all diligence you see this makes sense. The bank has 40,000. Aha, you may say this is magic. No. This is how the economics works with the creation of money and the head office can safely lend without batting an eye up to 20,000 to some one and charge interest on the magic deposit as you do not need this immediately and some one wants this for few days before you need. Then the banks charge you ledger fees, the commission on this on that and commissions follow the interest etc. The phrase, “conditions apply” is a safety net for the banks. I reiterate this is not new. But the banks always come out winner and open branches her there make bumper profits every day. There are some scrupulous banks that charge you interest on the savings account too.
This is the economy canon. Firozali A. Mulla MBA PhD

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