Emirates NBD profits resilient, says Moody’s

dubai — Dubai-based lender Emirates NBD’s profitability is resilient despite losing its market leadership position to First Abu Dhabi Bank (FAB), slower economy and rising interest rates, thanks to its healthy loan book and large low-cost deposits, Moody’s Investors Service analyst said on Wednesday.

“Emirates NBD’s unique position as the Dubai government’s bank of choice, its large low-cost deposit base and healthy loan book will support its profitability as it negotiates the challenges of a more competitive environment, a weaker economy, and rising interest rates,” said Mik Kabeya, Analyst at Moody’s.

First Abu Dhabi Bank completed its merger earlier this year, becoming the UAE’s largest bank. On Wednesday FAB said its H1 profit rose four per cent to Dh54.9 billion while assets totalled Dh625 billion.

Emirates NBD last week said it posted half-year net profits of Dh3.9 billion, up five per cent, on higher net interest income, lower expenses and lower provisions. Its assets rose two per cent to Dh456.2 billion.

Moody’s said profitability for Emirates NBD will be resilient to three main challenges facing the bank — the loss of its market leader position, the softer economy and rising interest rates.

The lender, according to Moody’s, will continue to benefit from its role as house bank for the emirate’s government.

Moody’s expects Emirates NBD to continue to provide financing for World Expo mega projects backed by the Dubai government. Competition with new rival FAB will also be softened by the limited overlap in corporate lending between Dubai and Abu Dhabi.

“A large retail branch network, and early adoption of advanced digital technology also support Emirates NBD’s franchise in the retail segment,” said Kabeya.

Furthermore, loan book repricing and large low-cost deposit balances will offset pressure from rising US interest rates.

“In our view, Emirates NBD will be able to protect its profitability against rising funding costs by gradually lifting its lending rates,” said Kabeya.

“In addition, the bank’s large pool of low-cost current and savings deposit accounts should also keep funding costs contained, since such deposits tend to exhibit stability and limited price sensitivity.”

Finally, loan recoveries from large corporate and government related issuers will moderate the impact of new delinquencies as the weaker economy hurts borrowers’ repayment capacity, particularly in the retail, and small and mid-sized corporate sectors. — waheedabbas@khaleejtimes.com