Emirates NBD May Write Back Dubai World Exposure

Emirates NBD, Dubai’s biggest bank, may this year write back its non-performing loan provisions against exposure to conglomerate Dubai World, an executive of the bank said on Monday.

“We have sufficient confidence that we will be able to reclassify it as performing,” Patrick Clerkin, head of the funding group at Emirates NBD, told Reuters on the sidelines of a Dubai investor meeting in London.

“It’s more of an accounting decision. It could be this year.”

Clerkin said Emirates NBD had provisioned five per cent of its total Dhs9 billion ($2.5 billion) exposure to Dubai World. If that provision is reclassified as performing, it will provide a significant one-off boost to the bank’s profits.

For example, analysts polled by Reuters expect the bank, on average, to make a net profit of Dhs895.4 million in the first quarter. Should the full amount be written back, it will enhance profit by around Dhs450 million.

Dubai World ran into trouble during the emirate’s 2009 property market collapse and had to restructure $25 billion of debt, of which about $14.4 billion was owed to around 90 local and foreign banks, and the remainder to the Dubai government.

In recent months, there has been increasing optimism among bankers that the conglomerate will be able to make scheduled payments in its restructuring plan, partly by selling assets.

Mohammed al-Shaibani, chief executive of sovereign wealth fund Investment Corp of Dubai and a key figure in negotiating the emirate’s debt restructurings in recent years, told Reuters last month that Dubai World would be able to meet a $4.4 billion loan maturity in May 2015 and expected to make some other repayments early.

“We look at it regularly. We still have it as non-performing because under the terms of the restructuring agreement and up until very recently, interest is being paid below market rate,” Clerkin said without elaborating.

A report by regional investment bank EFG Hermes last month said most Dubai banks had reclassified their exposure to Dubai World debt to “performing” because of the improved outlook, and that Emirates NBD was expected to do so soon.

Emirates NBD is 55.6 per cent owned by Investment Corp of Dubai.