• Net profit rises 27.6% Q-o-Q; cash dividend slightly below estimate Emirates NBD’s (ENBD) reported net profit of AED2,134 million for 4Q2015, +28% Q-o-Q and +74% Y-o-Y. Earnings surprised positively on lower-than-expected provisioning and a non-recurring gain. ENBD’s cash dividend of AED0.40 per share was up 14% Y-o-Y (our estimate: AED0.45); however, pay-out decreased to 34% from 42% in 2014. We believe management is likely to have cut pay-out to reinforce ENBDs capital position to help the bank comply with the large exposure rules. ENBD is well-positioned to benefit from higher US rates; its provisioning has room for improvement in 2016e, and it is likely to benefit from lifting of sanctions on Iran, in our view. ENBD trades at 2016e P/BV of 1.0x, and we reiterate our Buy rating on the stock. • Strong loan and deposit growth; spreads surprise Loan growth was strong at 3.4% Q-o-Q/10.0% Y-o-Y, underpinned by growth in the Islamic segment. Management expects loan growth to decelerate to mid-single digit in 2016e. Deposit growth outpaced loan growth, with growth being driven by term deposits. ENBD’s CASA deposits shrunk 2.4% Q-o-Q; however, its CASA mix continues to be healthy at 55%. Spreads were resilient, despite system wide pressure on liquidity, aided by reversal of suspended interest and a favourable deposit mix. Management expects NIM to remain relatively stable in 2016e. • Islamic bank drives incremental NPLs; SME stress begins to ease Provisioning surprised positively as cost of risk eased to 73bps from 115bps in 3Q2015, helped by reversal of provisions in the corporate segment. NPL formation (2.5% Q-o-Q) was relatively contained, with the bulk of new NPLs originating in the Islamic segment, where loan growth was quite robust in 2015. Management states that pressure on SME segment is beginning to taper off, and deterioration in the retail segment has been minor, so far. The bank’s credit quality metrics remain robust, with NPL coverage at 112% and gross provisioning reserve at 2.8%.
Shabbir Malik Murad Ansari
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