Results aside, the key focus of the call was on the exit strategy of the real estate portfolio and credit quality. Incremental information on the merger was limited. We believe the real estate gain would be very supportive of a strong dividend pay-out for 2016, as it has boosted FGB’s capitalisation (CET1 ratio 16.3%) and earnings (9M16 up 5% Y-o-Y).   Real estate: Management is looking to sell the remaining (AED6bn) real estate portfolio in the coming quarters. FGB said that they have been on an exit strategy, however they have accelerated the process in light of the upcoming merger and Basel III requirements. As of 3Q16, FGB’s real estate portfolio comprised of land in Abu Dhabi (44% of the real estate portfolio) and development properties in Abu Dhabi (51%). The company sold the property generating rental income, as a result rental income of AED120-130 mn would no longer be there. FGB expects the development properties in Abu Dhabi (Reem island) to be delivered in 2017. FGB is conducting a revaluation exercise of its real estate portfolio. It does not expect a major negative or positive surprise in 4Q16 because of this revaluation exercise.   Asset quality – positive guidance: FGB said that NPL build-up was normal and there was no extraordinary NPL formation other than the repayment by a client which was classified as a NPL. Management added that they are feeling positive about the credit quality in the retail and wholesale segment. The bank said that its exposure to KSA contracting sector is miniscule. The increase in provisioning in the corporate segment was driven mainly by volume linked general provisions.   Funding – concentrating on diversification: FGB continues to diversify is funding – increasing mix of CASA deposits and growing dependence on international deposits. International deposits are sourced from various geographies (Europe and Asia) and from corporates and non-banking financial institutions. The tenor of these deposits is typically six months. International deposits account for 8% of the bank’s deposits.   NIM benefits from cost of fund optimisation: Funding costs improved sequentially as the bank repaid an expensive sukuk that matured. Moreover cost of funds benefited from the replacement of term deposits with CASA deposits. Management stated that competitive pressures and a low growth environment continue to weigh on yield.   Fee & commission income driven by sustainable factors: Commission income was boosted by the performance of the Libyan subsidiary. Management stated that the fee income is sustainable as it is stemming from the corporate business and not linked to the sale of real estate. (Company, Shabbir Malik)   First Gulf Bank (AD): AED11.20 as of 27 October, Rating: Neutral, FV: AED13.70/share, MCap: USD13,733mn, FGB UH / FGB.AD