Emirates NBD joins rush for bonds

Emirates NBD, the largest local lender by assets, is preparing to join the race to raise fresh funds and issue bonds as credit markets show signs of easing. The disclosure comes after the bank surprised analysts with an unexpected 3 per cent increase in third-quarter profits, compared with the same period last year. "This is an opportunity to test the market after it was closed for the last 18 months," said Rick Pudner, the chief executive. "We need to find a space in the roll-out that we have seen in recent weeks. We think there is an opportunity and we are looking actively." After months of inactivity, companies based in the UAE are returning to capital markets and meeting with international investors. Companies including the Tourism Development and Investment Co - the development arm of Abu Dhabi's tourism authority - Emirates Airline and Dubai Investment Co have gone to the market in recent months, raising an overall US$9 billion (Dh33.05bn). And the Dubai Government this week announced plans to launch a $6.5bn bond programme. Emirates NBD first indicated it would raise fresh funds two months ago to take advantage of a new federal law that guarantees bonds issued by local banks. The law, aimed at helping lenders who are under pressure to boost deposits and fund new lending, has not yet been finalised. Mr Pudner said the bank was still capable of repaying its upcoming debt obligations "with its existing cash flow". It has to repay Dh2.3bn by the end of the year, with another Dh7bn in debt due next year. Mr Pudner's remarks signal that liquidity may be improving in the banking sector. A Finance Ministry official said on Monday banks would not need a third and final cash injection of Dh20bn from a government support facility set up last year, aimed at easing the lack of cash. The Government first offered local banks a Dh70bn rescue package last November and has already released Dh50bn in two parts. "The ministerial committee, which meets once a month, has found that banks do not currently need the remaining Dh20bn," said the ministry director general Younis al Khoori. Emirates NBD's third-quarter net profit rose to Dh1.05bn from Dh1.01bn in the same period last year. Analysts had expected between Dh720 million and Dh516m. Between July and September, the bank increased its interest income by one third, which more than offset new provisions for loan defaults. Net interest income rose to Dh1.85bn from Dh1.4bn for the third quarter last year. But Mr Pudner warned the margins were not here to stay. "Uncertainties and challenges remain in the near term and the bank retains its cautious stance." Rising impairment charges on consumer and commercial loans and general provisions have put pressure on banks this year. Non-performing loans (NPLs) rose to 1.88 per cent in the September quarter from 1.56 per cent in the second quarter. NPLs accounted for just under 1 per cent of total lending last year. Emirates NBD said the growth of NPLs was slowing. The bank maintained its earlier forecast that NPLs may rise to 2 per cent at the end of this year and peak at 2.5 per cent next year. The results came as the Central Bank told lenders it planned to halve the period used to classify NPLs to 90 days, to bring the UAE in line with international standards. The new NPL classification is part of a draft circular issued to the country's banks. Mr Pudner said Emirates NBD was "already providing prudently for NPLs and more conservatively than the [Central Bank] guidelines". He said the guidelines would have minimal impact on the bank. Under current official guidelines, a loan becomes non-performing when payment is more than 180 days overdue. "A lot of banks use 90 days at the moment anyway," said Robert Thursfield, who heads financial institutions at Fitch Ratings in Dubai. uharnischfeger@thenational.ae tarnold@thenational.ae