PC: Gulf Business
The Dubai-based bank reports unchanged net profit that misses analyst expectations, despite growth both in the asset base and in net interest income.
Dubai’s largest bank by assets, Emirates NBD, Wednesday reported flat net profit for the third quarter of 2024 amid gains from increased net interest income as higher impairment charges and investments aimed at driving future growth offset the same.
Flat Q3 Net Profit and Missed Analyst Expectations
The Emirates NBD reported net profit for the period of July to September at 5.2 billion dirhams, translating to ($1.42 billion). This is the same as the previous period in 2023. The figure is below the mean estimate at 6 billion dirhams by the analysts, LSEG.
Interest Income Growth and Decline in Non-Funded Income
The interest income of the bank increased by 8% to reach 8.5 billion dirhams, with some benefits arising from interest rate dynamics in the region over recent quarters. However, this was negated by a 15% decline in non-funded income, which for the quarter was at 3 billion dirhams. Non-funded income consists of revenues from fees and commissions, trading income, and any other non-interest-related activities.
Emirates NBD had already indicated earlier in the year that it would look to boost non-funded income since the interest rate cut later in the year will be way into the year. However, key interest rates for central banks of the Gulf region, including the UAE, were reduced recently after the U.S. Federal Reserve announced a half-percentage point cut. The move will weigh heavily on the region as most currencies of the Gulf are pegged to the U.S. dollar.
Asset Growth and Improved Loan Quality
The bank’s total assets grew by 14% year-over-year to 931 billion dirhams in the third quarter, while gross loans increased 6% to 508 billion dirhams. The deposits were also witnessing significant growth with a 13% increase to 624 billion dirhams.
The bank managed to post an improvement in its non-performing loan ratio, which reduced to 3.9 percent over the first nine months of the year against 4.6 percent over the same period last year. It said the increase can be attributed to “strong recoveries, writebacks, write-offs and repayments.”
Economic Growth and Banking Sector Performance in Dubai
This has helped banks in the United Arab Emirates, such as Emirates NBD, to enjoy broader growth plans in the Gulf region. Higher interest rates over the past few years have boosted bank profits while governments in the region have been heavy on initiatives designed to diversify their economies away from oil.
And the real estate sector in Dubai, the economic heartbeat of this region, has seen a very rapid recovery since the COVID-19 pandemic times. The property market received a boost from Dubai’s quick rebound in the economy and even relaxed residency rules that were stimulating demand and overall growth.
Share Performance
Despite missing profit expectations in the third quarter, shares of Emirates NBD have risen 17.3% so far this year, getting ahead of many peers in the Gulf banking sector.
Summing up, while interest income outperformed even high expectations and asset quality improved, impairment charges rose and investments in the potential growth sectors remain, and thus, the profit for the quarter did not show growth.
