Emirates NBD profit rises 5% to Dh3.9 billion in H1 2017

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Emirates NBD future banking lab

Abdul Basit

Dubai – Emirates NBD, a leading bank in the region, on Wednesday delivered a record set of results with net profit up 5 per cent to Dh3.9 billion. Net interest income improved 2 per cent year-on-year due to loan growth and helped by a recent improvement in margins.
Net interest margin improved since the beginning of the year as loans reset at higher rates and funding costs improved as liquidity conditions eased. The operating performance was also supported by a control on expenses and lower provisions. The Bank’s balance sheet continues to strengthen with further improvements in credit quality and capital, coupled with solid liquidity ratios.
Emirates NBD affirmed its credentials as the region’s leader in digital banking with a revamp of its online banking platform including the launch of FaceBanking, a video banking facility that allows eligible customers to talk to an advisor at any time for assistance or sign up for a new loan instantly. The bank also announced a planned investment of Dh1 billion over the next three years to carry out a digital transformation program.

Hesham Abdulla Al Qassim

Hesham Abdulla Al Qassim, Vice Chairman and Managing Director, Emirates NBD said: “It is extremely pleasing to report that Emirates NBD has achieved its highest ever net profit in the first half of 2017. We are honoured to be the Official Banking Partner for Expo 2020 Dubai where we will play a key role in ensuring that banking services at Expo 2020 Dubai are at the forefront of innovation. Our digital banking leadership, along with our solid financial and operating performance, were once again recognized in this year’s Euromoney Awards for Excellence when Emirates NBD was awarded ‘Best Digital Bank in the Middle East’ and ‘Best Bank in the UAE’.”
Commenting on the Group’s performance, Group Chief Executive Officer, Shayne Nelson said: “Despite some uncertain times Emirates NBD has delivered a record set of half-year results with net profits of Dh3.9 billion, up 5% year-on-year.

Shayne Nelson

During 2017 we have seen margins widen 20 bps as recent rate rises flowed through to loan pricing and funding costs improved as regional liquidity conditions eased. The Group’s balance sheet continued to strengthen with improved capital and credit quality ratios and liquidity ratios were comfortably maintained within management’s target range.”
Group Chief Financial Officer, Surya Subramanian said: “The operating performance for the first half of 2017 was pleasing as we saw margins improve coupled with controlled loan growth. Non-interest income declined year-on-year due to the sale of investment securities in 2016 that were not repeated in the current year. Expenses remain firmly under control and provide headroom to invest for future growth. We also delivered a further improvement in credit quality with the NPL ratio strengthening to 6.1% and this, coupled with an increase in margins and lower costs, is a position we expect to hold for the remainder of 2017.”Total income for the half year ended 30 June 2017 amounted to AED 7,453 million; a decrease of 3% compared

Total income for the half year ended 30 June 2017 amounted to AED 7,453 million; a decrease of 3% compared with AED 7,671 million during the same period in 2016. Net interest income improved by 2% in H1-17 to AED 5,185 million as loan growth more than offset margin contraction.
Non-interest income declined 12% compared to the same period in 2016 due to the lower gains from the sale of investment securities. Non-interest income improved 10% compared to H2-16 as a result of lower foreign exchange income due to the Egyptian Pound devaluation at the end of 2016.
Costs for the half year ended 30 June 2017 amounted to AED 2,253 million, an improvement of 9% over the previous year, helped by a containment in staff costs following cost control measures implemented in 2016. The improvement in the cost-to-income ratio enables the Bank to continue to support future growth and digital expansion.
During the first half of 2017 the Impaired Loan Ratio improved by 0.3% to 6.1%. The impairment charge during this period of AED 1,260 million is 13% lower than in the corresponding period in 2016. This net provision includes AED 696 million of write-backs and recoveries, and together helped boost the coverage ratio to 123.5%.
Net profit for the Group was AED 3,894 million in H1-17, 5% above that posted in H1-16. The increase in net profit was driven by asset growth, a control on expenses and reduced provisions which helped offset lower non-interest income.
Loans increased by 5% and Deposits grew by 3% during the first half of 2017. The Liquidity Coverage Ratio is now reported for the first time at a very healthy 155.2% and the Advances to Deposits Ratio remains comfortably within management’s target range at 95%. In H1-17, the Bank raised AED 4.8 billion of term funding through private placements and term funding represents 10% of total liabilities. As at 30 June 2017, the Bank’s capital adequacy ratio and Tier 1 capital ratio were 20.7% and 18.3% respectively.

Outlook
We have revised our 2017 UAE GDP growth forecast down to 2% from 3.4% previously on the back of lower oil output, following OPEC’s decision to extend production cuts into Q1 2018. However, Dubai’s growth is likely to exceed this on the back of increased investment in infrastructure and a focus on non-oil activity. Anticipation of a 5% VAT to be introduced in early 2018 may boost spending in the second half of 2017, as consumers bring forward purchases that otherwise would be made in 2018.