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Mon 27 Jul 2009 02:09 PM

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Emirates NBD quarterly profit down 41%

UAE's largest bank blames a fourfold increase in provisions for profit drop.

Emirates NBD said on Monday its quarterly profit fell 41 percent due to a fourfold increase in provisions as the lender warned economic conditions would remain challenging in the near term.

The bank said net profit in the second quarter dropped to AED852m ($232m) from AED1.45bn in the same quarter in 2008.

The results were below the range expected by two analysts polled by Reuters who forecast AED948m and AED1.06bn respectively.Emirates NBD, the largest bank in the UAE by assets, said its net profit decline was "due to the prudent credit impairment allowances taken by the bank during 2009."

The bank said net impairment losses on its financial assets more than quadrupled to AED1.15bn during the second quarter versus AED248.7m one year earlier.

Analyst Janany Vamadeva at HC Brokerage said the extent of the provisions at Emirates NBD were of concern.

"The core operating profit is very good, but the provisioning level is the issue," Vamadeva said. "This is a common issue among banks in the UAE and we expect it to be like that until the economy recovers."

Gulf banks have seen quarterly profits hammered by provisioning for credit losses amid the financial crisis but also due to exposure to a pair of troubled Saudi conglomerates.

Regulators and bankers are grappling with the fallout from debt restructuring and fraud allegations at privately held Saad Group and Ahmad Hamad Algosaibi & Bros. The two firms are now embroiled in a lawsuit.

The UAE central bank instructed local banks to boost their provisions against their exposure to Saad and Algosaibi by 75 percent and 50 percent, respectively, in a private meeting this month.

Emirates NBD has made no comment on what exposure, if any, it has to the Saudi firms.

Last month, Emirates NBD's chief financial officer said he expected to see earnings remain under pressure from loan defaults this year.

"As we go through the year, we will see the materialisation of non-performing loans," Sanjay Uppal told Reuters Financial Television on June 22.

The lender is majority owned by the Investment Corporation of Dubai, a holding firm controlled by the ruler of Dubai. in June, the bank raised AED4bn by issuing debt securities to ICD in order to bring its capital ratio in line with central bank requirements.

The bank said on Monday that the "economic conditions are likely to remain challenging in the near term" but that it was well placed to "act upon any attractive opportunities that the current environment may present."

Shares in Emirates NBD traded nearly 1 percent lower on the Dubai bourse. (Reuters)

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