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Wed 30 Apr 2008 05:13 PM

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Emirates NBD sees earnings climb 36.8%

Surge in corporate and retail lending helps push lender's Q1 profit up to $351.3mn.

Emirates NBD, the largest Gulf Arab lender by assets, posted a 36.8% jump in first-quarter profit on a surge in corporate and retail lending as the second-largest Arab economy cut interest rates.

The bank, which resulted from the combination last year of Emirates Bank International (EBI) and National Bank of Dubai (NBD), said net interest income jumped 56.5% to 1.29 billion dirhams ($351.3 million) in the three months to March 31.

But costs rose 48% to 855 million dirhams as the cost of doing business in the UAE rises as inflation accelerates across the biggest oil-exporting region, where most states peg their currencies to the ailing dollar.

First-quarter profit hit 1.196 billion dirhams, or 0.27 dirhams per share, compared with 873.46 million dirhams, a year earlier, the bank said in a statement.

"Income was heavily driven by lending," Emirates NBD Chief Executive Rick Pudner told reporters in a conference call. "The demand for loans in this interest rate environment is strong with negative real rates."

Real interest rates reflect the official rates charged by banks minus inflation, which hit a 19-year peak of 9.3% in the UAE in 2006 and probably accelerated to 10.9% last year, according to a National Bank of Abu Dhabi (NBAD) estimate.

With its dirham pegged to the dollar, the UAE central bank has tracked six US Federal Reserve interest rate cuts since September 18, and banks have also been reducing rates on home loans, corporate loans and other retail facilities for customers.

Corporate lending climbed 48% and retail loans grew 53% in the quarter, Pudner said.

But costs would keep pace with revenue growth, Pudner said, calling inflation and the higher cost of doing business in the UAE "an increasing concern".

"The biggest element of our cost base is the staff," he said.

The quarterly earnings beat the 1.09 billion-dirham profit forecast from investment bank EFG-Hermes for Emirates NBD last month.

Net fee and commission income also grew 66.6% to 498.78 million dirhams and income from Islamic financing and investing surged 81.1% to 241.64 million, the bank said.

Emirates NBD unit Emirates Islamic Bank posted a more than tripling of first-quarter profit.

"I think the ability to sustain most of that momentum is definitely there," Chief Financial Officer (CFO) Sanjay Uppal told the conference call.

Emirates NBD had warned in February that 2008 was likely to be uncertain due to global market volatility. "We remain cautiously optimistic in a seemingly robust UAE economy," Pudner said.

RELATED: Emirates NBD sees 'uncertain year' ahead

Bank Chairman Ahmed Al-Tayer said in March he expected profits to rise 30% this year. (Reuters)

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