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Wed 7 Dec 2011 06:19 PM

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Dubai's biggest bank may need $2.2bn for bad loans

Goldman Sachs estimates provisioning for Emirates NBD through to end of 2013

Dubai's biggest bank may need $2.2bn for bad loans

Emirates NBD, the UAE's biggest bank by assets, may need to set aside as much as AED8bn ($2.2bn) by the end of 2013 to cover for bad loans, Goldman Sachs said.

“Looking at the guidance provided on asset quality trends, we calculate a provisioning range of AED6-8bn is required between the fourth-quarter of 2011 and the fourth-quarter of 2013,” analysts including Waleed Mohsin and Ali Shekofti wrote in a report dated Wednesday.

Emirates NBD is one of the biggest creditors to Dubai World, one of the emirate’s three main state-owned holding companies that reached a deal in March to delay payments on $25bn of loans.

It is also a key lender to units of Dubai Holding, one of whose investment companies is in talks with banks to reschedule at least $10bn of liabilities. The bank in October took over the unprofitable Dubai Bank on orders from the emirate’s ruler.

Non-performing loans on the books of Dubai’s banks will peak at 15 percent to 16 percent in 2013, up from 4.8 percent in 2009 and 11.3 percent in 2010, investment bank Exotix Ltd. said December 4.

Moody’s Investors Service expects provisions to peak at 13 percent to 16 percent next year, it said in a report November 3.

“The significant increase in the renegotiated private sector loans hides the true extent of the banks’ asset quality problems,” Fitch Rating said in a report on UAE banks on Tuesday.

“Whilst fundamental credit issues in the operating environment remain unresolved, some of these loans may re-emerge as non-performing loans.”

Goldman Sachs, which has a “neutral” recommendation on Emirates NBD, cut the price estimate of the shares to 4.38 dirhams from 4.79 dirhams to reflect “lower earnings expectations.”

The stock dropped 1.5 percent, the most in a week, to close at 3.25 dirhams in Dubai on Wednesday.

Emirates NBD, 56 percent owned by the Dubai government, reported a 59 percent decline in third-quarter profit to AED175m as loan-loss provisions rose.

The bank’s ratio of non-performing loans to total loans will rise to as much as 14 percent by the end of the year and advance by 1 percentage point annually over the next two years, it said in October.

The bank is aiming to sell an Islamic bond this month, CEO Rick Pudner said on Tuesday.

Fitch Ratings placed Emirates NBD’s credit rating on notice in October for a possible downgrade on concern that a rise in bad loans due to a weak property market and the impact of a slowing global economy will affect the bank’s outlook.

Fitch rates the company A+, the fifth-highest investment grade, while Moody’s Investors Service rates the bank A3, the fourth-lowest.

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