Emirates NBD Q3 profit dives 69% as COVID-19 lifts bad debt charges

Emirates NBD's net profit fell to $424.74mln

A view of Emirates NBD head office in Dubai, UAE January 30, 2018. Image used for illustrative purpose.

A view of Emirates NBD head office in Dubai, UAE January 30, 2018. Image used for illustrative purpose.

REUTERS/Satish Kumar

DUBAI - Dubai's biggest bank Emirates NBD posted on Tuesday a 69% slump in quarterly profit, as bad debt charges rose due to the COVID-19 crisis, while earnings suffered in comparison with last year, when they were swelled by an asset sale.

Recent economic data suggests there has been some recovery in global economic activity, the bank said, but cautioned activity remains well below its level at the beginning of 2020.

Net profit for the third quarter fell to 1.56 billion dirhams ($424.7 million), from 5 billion dirhams last year when the bottomline was boosted by a stake sale in payments processor Network International.

Analysts had expected a net profit of 1.76 billion dirhams. The lender's third-quarter net profit was the lowest recorded since December 2014, according to Refinitiv data.

Emirates NBD said impairment allowances increased 41% to 2.15 billion dirhams by the end of September, from a year-ago period.

"The impact of the pandemic has not yet manifested itself on credit quality, however the bank is preparing for it by building provision reserves and cutting costs," EFG Hermes' banking analyst Shabbir Malik said in a note.

Loan growth was sluggish, mainly due to weakness in Emirates NBD's Turkish unit Denizbank, Malik said.

Shares of Emirates NBD were down 1% in late morning and have fallen more than a fifth since the start of the year, broadly in line with Dubai's benchmark stock index.

Emirates NBD's research team has forecast a 5.5% contraction in the United Arab Emirates' economy this year, as both oil and non-oil sectors are affected by the COVID-19 pandemic.

Ratings agency S&P said in a report last week that authorities in the Gulf region are expected to withdraw regulatory relief measures progressively over the next six-to-12 months to avoid major repercussions for the banking sector.

"We believe that most of the deterioration in asset quality will be down to struggling SMEs and companies in the real estate, construction, hospitality, and consumer-related sectors," S&P said.

Signs of such deterioration are already emerging.

Arabtec Holding shareholders authorised the board of the Dubai-listed construction company earlier this month to file for liquidation due to its untenable financial position following the fallout from the pandemic.

($1 = 3.6728 UAE dirham)

(Editing by Emelia Sithole-Matarise) ((Saeed.Azhar@thomsonreuters.com; +971 44536787; Reuters Messaging: saeed.azhar.reuters.com@reuters.net))

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