UAE’s top lender sees bad loan provisions up in 2011 amid debt restructurings
Emirates NBD is eyeing merger opportunities within the region and the lender will set aside more money to cover bad loans in 2011 amid debt restructuring, its top executive said on Wednesday.
ENBD, Dubai's largest bank by market value, reported sharply higher fourth-quarter profit last month but impairments on non-performing, or bad loans and on investments hit its yearly results.
"There will be further restructurings going on, there will be further provisions, the content of that I cannot say. We are not out of the provision phase yet," chief executive Rick Pudner told reporters on the sidelines of a conference.
The bank is among lenders with the largest exposure to Dubai World, the state-linked conglomerate which reached a deal to restructure $24.9bn of debt last year. Other state-owned entities like Dubai Holding are in talks with their creditors to restructure their debt.
Asked whether the lender was eyeing any mergers this year, he said: "We're looking at opportunities ... we continue to look around, our ambition is to move some of our revenue generating activities outside of the UAE."
The lender has about AED12.9bn ($3.51bn) in debt maturing in the next two years, with AED3.8bn due in 2011 and just over AED8bn next year, a presentation said.
ENBD is 56 percent owned by the Investment Corporation of Dubai (ICD), the emirate's sovereign wealth fund.
Does anyone really know the total debt of Dubai World? Are these numbers true or is there some other figures not made public?
Most of the "bad loans" the banks carry are the ones given to large companies. It is ironic when a small company which holds a lot of potential for growth, is denied loans because of the bad example set by these large companies.
As I was writing two years ago in this paper, UAE need less but stronger banks who could move from local to regional players and could compete better with international institutions. It could have been the right time two years ago but the situation could be more challenging now.
In fact, Emirates NBD - like some other government controlled banks - have played a key role in supporting Dubaiâ€™ government action during the worse of the financial crisis. Now the loans are on the books and will potentially weight a few years especially for those under restructuring.
However, being potentially in a weaker position than two years ago to negotiate a deal does not mean it is too late. The competitive advantages are still there and a move towards consolidation could even benefit to emiratesâ€™ governments. Hopefully we will see this year a first move in the consolidation process (locally and/or regionally), bearing in mind boards will still have to overcome specific regional difficulties.
@Younes, it has nothing to do with example. More likely there is simply no money left without going under the capital level required (surprisingly as I keep getting calls for personal loans from my bank)
@Tristan consolidation faces serious issues here. To start there will be losers, none of the local groups will want to yield ground. Secondly less banks means less cushy management positions.
Banks will keep muddling through this situation without recovering nor going totally down. Funnily this applies to a number of countries.
'Dubai is back' was perhaps a premature statement, essentially it is the banks who are carrying all of Dubai's debt forward. They are going to have to dig deep to ensure sufficient capitilisation to meet new central bank thresholds and also new loan rules restrict the size of the business platform.
While the level of default has gone down it has not gone down that much, so non-performing loans credit cards have still to be covered. Oil prices sky high once more, house prices falling again in a global context, deficits have increased across the world as a result of staving off the last recession but add disasters in Australia and Japan affecting food production and consumer goods. More reductions in banking sector workforce to come and knock, given that Emiratis cannot be downsized by law
Do all these factors remind anyone of an earlier period in time and the aftermath?