• Raise earnings estimates; reiterate Buy We raise ENBD’s 2016-17 estimates by 5.0% as we factor-in stronger loan growth and lower provisioning. We believe ENBD’s provisioning (2015 cost of risk 118 bps) should continue to decline despite a challenging macro aided by i) an improvement in the NPL ratio (ENBD: 7.2% as of 2015 versus sector average of 6.2%), ii) release of loan loss reserves (NPL coverage is quite robust at 112%), and iii) management incentivising the recoveries effort. The bank’s valuation – 2016e P/E of 6.2x and P/BV of 1.1x – is undemanding given its 2016e ROE of 19%, and we believe it is the best positioned in our UAE coverage to benefit from the lifting of sanctions on Iran and higher US rates. We cut our FV to AED10.0 from AED11.0 as we raise our COE (+50bps to 12.5%). We reiterate our Buy rating on ENBD.
• Islamic & retail to drive loan growth; corporate loan attrition to ease We forecast loan growth CAGR of 4.3% over 2015-17 for ENBD versus our previous estimate of 2.6%, slightly higher than the c3% economic growth forecast for UAE. With a LDR of 94%, we believe ENBD is well positioned to fund this growth. It intends to continue focusing on the Islamic and retail segments for growth, two segments that saw strong growth in 2015. Management also expects a lower attrition rate in the corporate sector as tighter system liquidity eases competitive pressure. ENBD is also less dependent on government deposits than its Abu Dhabi peers.
• Dividend pay-out likely to remain conservative ENBD’s capitalisation – Tier 1: 18%, CET 1: 14% - is quite satisfactory and we do not expect management to tap the market for fresh capital. However, we expect ENBD to maintain a relatively conservative pay-out of c40% as the bank’s credit exposure to the Dubai government (DG) (45% of loans and 240% of capital) is elevated. ENBD’s RWA to assets ratio at c60% is relatively low as the credit exposure to DG, is assigned a zero risk weight. We believe the regulator will continue to allow the bank to treat DG as sovereign exposure.

Shabbir Malik
Murad Ansari