Dubai Islamic Bank (DIB) reported net profit of AED876mn for 3Q16, down 6% Q-o-Q and 10% Y-o-Y. The bank’s earnings came in line with our estimate of AED901mn and consensus estimate of AED896mn.   Main positives: i) Strong loan growth (+2% Q-o-Q, +20% Y-o-Y); ii) Spreads stabilized Q-o-Q at 2.74%; iii) Lower-than-expected provisioning (cost of risk 40bps)   Main negatives: i) Contraction in deposits (-2% Q-o-Q); ii)Weak fee income (-5% Q-o-Q and -12% Y-o-Y)   Our view of the results: Earnings came in line with expectations as lower-than-expected provisioning compensated for weak core income (net interest income + fees). Spreads stabilised Q-o-Q after contracting steadily since 3Q15, as the bank managed to keep cost of funds under control and started passing on the higher cost of funds to borrowers. Management had indicated that they expect 2H to be better than 1H for spreads, as the wholesale book, and the variable portion of the retail loan book starts to re-price upwards. Provisioning continues to be subdued, with cost of risk at c40bps in 3Q16, on account of very low provisioning in the core corporate segment and strong recoveries in the non-core corporate segment. Loan growth continues to be strong; however, deposits contracted pushing up the LDR ratio rose to 91% from 87% in 2Q16. (Earnings release, Shabbir Malik, Murad Ansari)   Dubai Islamic Bank: AED5.38 as of 23 October 2016, Rating: Neutral, FV: AED5.80 per share, MCap: USD7,245mn, DIB UH / DISB.DU