Emirates NBD has reported a 13 per cent decline in its fourth-quarter net profit as Dubai biggest lender battles tougher economic conditions amid declining interest and non-interest incomes.

The lender’s profit for three months ended 31 December 2016 reached AED1.85bn ($503.7m), which compares with AED2.13bn recorded for the same period in 2015, the bank said in a results presentation posted on Dubai Financial Market (DFM) website, where its shares are traded.

The bank’s non-interest income during the last three months of 2016 declined to AED1bn, a 29 per cent drop from AED1.40bn while the net interest income shrunk by 8 per cent to AED2.5bn from AED2.67bn for the same period. The lender also reported a 1 per cent and 7 per cent decline in net interest and non-interest income, respectively, for 12-month period ending at December 31.

The fourth-quarter impairment allowances, however, improved by 29 per cent to AED424m from AED599m in the last four months of 2015.

Most banks in the GCC are struggling to maintain healthy profit growth amid sluggish economy and limited growth opportunities in over-crowded domestic markets as governments cut spending on the back of a fall in the oil prices.

For the full-year 2016, Emirates NBD reported a modest 2 per cent increase in net profit, helped by further recoveries from legacy impaired loans, which the lender said has offset lower non-interest income.

The Emirates NBD board of has recommended to maintain the 2016 dividend at AED0.40 per share, it said in a separate statement to Dubai bourse.

Total assets and customer loans and deposits recorded growth in financial year 2016. Assets reached AED448bn, as of 31 December 2016, up 10 per cent for end-2015. Customer loans rose 7 per cent to AED290.4bn while deposits climbed 8 per cent to AED310.8bn for the same period, the bank said in the statement.

Credit quality also improved as the impaired loan ratio improved to 6.4 per cent while the bank at the end of 2016 had the impaired loan coverage ratio of 120.1 per cent. Its loans-to-advances sat at 93.4 per cent, which according to Emirates NBD, “remains comfortably within the management’s target range”.

Despite challenging conditions in the market, the lender has raised over AED20bn of term debt at competitive pricing, through private placements, a sukuk issue and a club loan which further boosted the structural liquidity

“Costs grew by 4 per cent year-on-year on the back of late 2015 growth in anticipation of increased business volumes, which has since been contained in light of the new economic reality,” according to Emirates NBD statement. “Staff costs improved for fourth consecutive quarters as cost control measures take effect.”

Emirates Islamic

Emirates NBD is in the process of reorganising its business lines to control costs and improve profitability. It has already closed down operations of its subsidiary Emirates Money, a spokesman of the bank confirmed to MEED on 19 April. Emirates NBD’s sharia-compliant arm, Emirates Islamic (EI), earlier this year cut about 200 jobs as part of a wider organisational restructuring, sources familiar with the situation told MEED.

The full-year net income for EI slumped from AED640.67m at the end of 2015 to AED106 at end of 12 months of 2016, as costs grew by 11 per cent, according to the financial statement posted on DFM website, which did not give the fourth-quarter financial details.

The profitability was affected by a spike in the allowances for impairment on financial assets and net of recoveries during the year, which grew from AED813.92m at the end of 2015 to AED1.33bn.

The lender said its impaired financing ratio stood at 9 per cent at the end of 2016 and its provisioning coverage ratio has advanced to 96.9 per cent.