Emirates NBD (ENBD) reported net profit of AED1,664mn (EPS: AED0.27) for 3Q16, down 13% Q-o-Q and 0.5% Y-o-Y. The bank’s earnings missed our estimate of AED1,766mn and consensus estimate of AED1,826mn.     Main positives: i) Good cost control (operating costs -0.7% Q-o-Q); ii) Slight improvement in credit quality metrics (NPL ratio eased to 6.4% from 6.6% in 2Q16; NPL coverage rose to 121% from 119% in 2Q16); iii) Strong deposit growth (+5% Q-o-Q, +16% Y-o-Y)   Main negatives: i) Pressure on spreads (-10bps Q-o-Q to 2.35%); ii) Weaker-than-expected fee income; iii) Higher provisioning at Islamic subsidiary   Our view of the results: Results were a mixed bag. ENBD’s earnings missed our expectations, due mainly to weak revenue, as spreads came under pressure, and fee income was subdued. The bank’s spreads contracted 10bps Q-o-Q to 2.35% mainly due to higher cost of funds. ENBD’s liquidity however improved – LDR eased to 93% from 96% in 2Q16 – underpinned by strong growth in mainly term deposits. Core fee income declined 8% Q-o-Q, dented by lower business volumes due to higher number of public holidays in 3Q16. Provisioning remained under control – cost of risk stable Q-o-Q at 83bps – as NPL ratio eased to 6.4% from 6.6% in 2Q16. That said, provisioning at Emirates Islamic Bank (EI) – ENBD’s Islamic subsidiary – nearly doubled to AED455mn in 3Q16 due to increased NPLs in the micro SME segment. EI posted a loss of AED31mn vs. profit of AED87mn a year ago. (Earnings release, Shabbir Malik, Murad Ansari)   Emirates NBD: AED8.10 as of 16 October 2016, Rating: Buy, FV: AED10.00 per share, MCap: USD12,266mn, EMIRATES UH / ENBD.DU