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Tue 26 Apr 2011 05:00 PM

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Emirates NBD sees sluggish loan growth this year

Retail market presents good growth opportunities for credit cards business, SME banking, CEO says

Emirates NBD sees sluggish loan growth this year
Emirates NBD Chief Executive Rick Pudner

UAE banking group Emirates NBD will see low single-digit loan growth in 2011, mainly from retail banking due to a still sluggish recovery in bank lending in the Gulf state after the financial crisis.

Chief Executive Rick Pudner said that the retail market presented good growth opportunities, including for the bank's credit cards business and small-and-medium enterprise banking.

"We're expecting growth in loans to be about 3-4 percent of the balance sheet this year. All banks in the UAE now are very liquid.....looking for opportunities to deploy liquidity. [We see] asset growth of about 5 percent this year," said Pudner, who was speaking to reporters on a conference call on the bank's first quarter results.

The bank, the third largest in the United Arab Emirates by market value, reported a 27 percent rise in quarterly profit based on a one-off gain of AED1.8bn from its sale of Network International, but loans fell 1 percent in the quarter.

Impairments on financial assets and on loans continued to increase in the quarter, and the bank's impaired loans ratio increased 0.4 percent to 10.4 percent.

Total impairment allowances stood at AED2.8bn at the end of March, a statement said, increasing by AED628m during the first quarter.

Surya Subramanian, group chief financial officer, said he expected the non-performing loans (NPL) ratio to peak at 13-14 percent in 2011, revised down slightly from the 14-15 percent indicated earlier this year.

He added that this estimate allowed for loans currently being renegotiated as part of debt restructuring talks to be classified as non-performing, but declined to give names.

Banks in the UAE were forced to book record provisions for non-performing, or bad, loans in the wake of the global financial crisis, which hurt profitability and constrained lending.

ENBD suffered from heavy exposure to investments in Dubai's battered real estate sector as well as to indebted conglomerate Dubai World  which reached a deal to restructure $25bn of debt last year.

"When it comes to Dubai-based banks, the million dollar question is when is this provisioning cycle is going to end. I don't think anyone is really sure about it," said Nadi Bargouti, head of asset management at Shuaa Capital.

Dubai Group, a unit of conglomerate Dubai Holding, owned by the emirate's ruler is currently in talks with banks as is Investment Corporation of Dubai (ICD), which is negotiating a $4bn refinancing of a syndicated loan due this year.

The lender has about AED12.9bn in debt maturing in the next two years, with AED3.8bn due in 2011 and just over AED8bn next year.

Emirates NBD made a net profit of AED1.4bn ($381m) in the three months to March 31, beating an average forecast of seven analysts' estimates on the bank's website was for AED1.04bn.

"The bottom line number is extremely high but it is interesting that they have used the profit from Network International to offset writedowns from Union Properties and improvement of portfolio provisions," said Raj Madha, analyst at Rasmala Investment.

"Looks like a significant amount of balance sheet clean-up but there is no growth -- this might be a little disappointing, but we were expecting minimal growth."

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