Profits soar for Middle East’s biggest bank

Robert Hamilton
For Al-Shorfa.com
2008-08-01

An Emirati man walks past a branch of Dubai Islamic Bank in the Gulf emirate on March 9. The market for Islamic finance and banking is growing rapidly in the oil-rich Gulf thanks to burgeoning wealth and attractive financial instruments. Studies have put the total value of Islamic equity funds in the Gulf region at around $30 billion [USD]. (Photo by Karim Sahib/AFP/Getty Images)

Emirates NBD, the Middle East's largest banking group by assets, has announced soaring profits for the second quarter of 2008, leading the charge amid a slew of successful results for U.A.E.-based financial institutions.

The bank – formed after the merger of Emirates Bank and National Bank of Dubai earlier this year – revealed that net profits for the second quarter of 2008 increased by 45 percent to $401 million [USD]. The total income of the bank reached $679 million, an increase of 48 percent on second quarter 2007 pro forma results, while total assets reached $78 billion, an increase of 12.4 percent from year-end 2007.

Operating costs for Emirates NBD reached $253 million in the second quarter of 2008, a year-on-year increase of 45 percent. The increase in costs was driven by investments in staffing and governance, capabilities, increasing distribution network and infrastructure development, the bank said.

The cost-income ratio declined to 37.4 percent in the first half of 2008 compared to 38.8 percent in the second half of 2007. According to the bank, this was the result of continued focus on costs management, productivity enhancement and realisation of synergies from the merger.

"The local economy remains supportive of the growth we are experiencing. We expect the trend to continue," said Rick Pudner, CEO of Emirates NBD during a teleconference on July 22.

National Bank of Abu Dhabi (NBAD) reported net profits of $509 million for the first half of 2008, 58 percent above the first half of 2007. Union National Bank's (UNB) net profit grew to $208 million in the first half of 2008, as against $143 million in the corresponding period in 2007, registering a growth of 41 percent.

"The outstanding first half results reflect the strong performance of all the bank's businesses," Michael H. Tomalin, NBAD's chief executive said in a statement.

U.A.E. banks are boosting profit as the country spends record oil revenue on real estate projects, building industrial units and infrastructure. The UAE economy, the Arab world's second-biggest, will probably expand 7.2 percent in 2008, according to a survey of seven analysts by Bloomberg News earlier in July.

Banking industry analysts added that U.A.E. banks' relatively low exposure to the U.S. and Western markets, and the strong performance of the regional economies supported by the high oil prices, are helping them to beat expectations. While the bigger banks such as Emirates NBD, NBAD and ADCB have reported strong growth in their wholesale lending, relatively smaller banks have also capitalised on lending opportunities to small and medium enterprises.

Rakbank's first-half net profit jumped 71 percent to $85 million compared to the same period last year. This was largely due to growth in the small business, commercial loans, mortgage finance and credit card portfolios.

According to Fitch Ratings, the U.A.E. banking sector continues to benefit from a buoyant operating environment.

"Given that performances rely on core banking activities, and in the light of continuous strong demand for credit, we expect banks to perform strongly in 2008," said Philip Smith, senior director at Fitch's Financial Institutions team, in a recent report.

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