• 4Q2015 earnings miss on lower fees and one-offs DIB 4Q2015 net profit declined 11% Q-o-Q to AED865 million, falling short of our AED957 million estimate on lower-than-expected fees and weaker income from subsidiaries (non-recurring effect). DIB proposed a cash dividend of AED0.45/share (pay-out c50%) versus AED0.40/share for 2014, in line with our expectation. We raise our 2016-17 estimates by c2.0% to factor in stronger loan growth (2016 guidance 10-15%). However, we cut our FV to AED6.2 from AED6.7 as we raise cost of equity by 75bps (widening Dubai-Abu Dhabi CDS spread, oil price collapse). At c2.0x 2015 P/B, we believe DIB’s valuations capture our concerns around high equity leverage (DIB: c13.0x versus UAE: c10.0x) and the sector’s credit quality outlook. We maintain our Neutral rating on DIB.
• Excess liquidity has diminished; pressure on spreads likely in 2016 DIB’s loan growth was robust at 5.3% Q-o-Q / +31.4% Y-o-Y in 4Q2015, almost 4x the sector’s growth rate. This has, however, diminished the bank’s liquidity buffer as its LDR rose to 88% from 80% in 2014. Spreads have started to tighten, and we expect further compression in 2016 as funding costs rise on deposit mobilisation. DIB’s growth in 2015 was underpinned by the corporate loan book (+40% Y-o-Y), driven by aviation (+95% Y-o-Y), manufacturing and services (+83% Y-o-Y) and financial institutions (+50% Y-o-Y). Growth in the retail bank was relatively moderate at c13% Y-o-Y.
• No surprises on provisioning; further improvement in NPA likely At c30bps in 4Q2015, DIB’s credit cost remained subdued, helped by continuation of strong recoveries (AED350 million in 4Q2015). In total, the bank reported recoveries of cAED1 billion (115bps of gross loans) in 2015, which we believe would be challenging to replicate in 2016. The bank’s NPA ratio eased to 5.0% from 5.9% in 3Q2015, as certain accounts under restructuring were upgraded to performing. Management is eyeing an NPA ratio of 4.0% by end of 2016, aided by further rehabilitation of restructured accounts (c2.0% of gross loans).

Shabbir Malik
Murad Ansari