NBD second-quarter net declines

26 July 2006

Dubai: National Bank of Dubai, UAE's fourth biggest bank by assets, unveiled a 28.5 per cent fall in second-quarter profit on Tuesday, hit by a sharp rise in interest costs and losses on its investment portfolio.

The bank said in a statement that net profit in April-June fell to Dh247.24 million from Dh345.72 million in the same quarter a year ago. But compared to the first quarter, when the bank posted a profit of Dh257.03 million, earnings were down just 3.8 per cent.

"Interest margins have been pressured by rising interest rates but the healthy growth in loans and customer deposits has ensured that the impact has been cushioned," the statement said.

The results showed NBD's interest income jumped 60.76 per cent in the second quarter from a year ago to Dh756.02 million but a 143.59 per cent rise in interest expenses more than wiped out gains.

The bank also incurred a loss of Dh11.38 million on sales on its investment portfolio versus a profit of Dh13 million last year.

Interest rates in the UAE track those in the US owing to the dirham's peg to the dollar. The rates have been raised four times this year by a quarter percentage point each to 5.25 per cent from 4.25 per cent.

Ahead of the results, NBD shares closed five per cent higher at Dh11.55, trading at 14.8 times its annualised 2006 earnings of Dh0.78 or a price-to-book value of 3.04.

Several UAE banks have reported a decline in second quarter earnings following losses on their share portfolios and decline in IPO-related fee and interest income.

"This growth continued to focus on expanding commercial banking activity and increased market share, thereby further strengthening the bank's sustainable revenue stream," it said.

Loans and advances, which make up 60 per cent of the bank's assets, grew 26.6 per cent to Dh35.4 billion supported by the consistent growth in customer deposits, which increased 14.6 per cent from December to Dh42.5 billion.

Other income, reflecting increased fee and commission revenue from a growing trade finance and loan business, rose 3.68 per cent from the preceding quarter to Dh134.33 million.

In June, NBD received shareholder's approval for a one-for-one rights issue to raise Dh3.891 billion.

The extraordinary shareholder's meeting also authorised NBD to float a Euro Medium Term Note or a Euro Commercial Paper Programme.