Emirates NBD. Background. Recommendation: BUY. Results Review. UAE Banks. Impaired Loans in % 2015 Loan-to-Deposit ratio 2015.

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1 Results Review Emirates NBD Andreas Kuehrer Research Analyst (65) UAE Banks Recommendation: BUY Credit Direction: Neutral Background Emirates NBD (ENBD) has the leading domestic franchise in the UAE and is the flagship bank of Dubai. It has a highly diversified revenue stream and a high revenue-generating capacity, an adequate capital base, sound liquidity, and an extensive customer deposit base. Emirates NBD is the largest bank in the UAE by total assets (AED 407 billion as of December 2015), the second largest by market capitalization (AED 38 billion, after FGB). ENBD is a full service bank with principal business activities in corporate, consumer, treasury, investment banking, Islamic financing and asset management services. The bank was incorporated in 2007 on the back of a merger between Emirates Bank International and National Bank of Dubai. This has exposed the bank to major corporate restructuring in Dubai. Restructuring of exposures to Dubai World has been completed, but other exposures to GREs are still being restructured. Problems remain in Dubai real estate, although there are some signs of recovery. As of 31 December 2015, the bank s largest shareholder was Investment Corporation of Dubai, its overall parent, with a 55.64% stake. Investment Corporation of Dubai is majority owned by the Government of Dubai. The bank is currently rated Baa1 by Moody s and A+ by Fitch Impaired Loans in % 2015 Loan-to-Deposit ratio 2015 Source: Company Materials 1

2 Results Emirates NBD reported net profit of AED 7,124 million, up 39% year-on-year. The main differences are: better net interest income and lower impairment allowances. Operating profit improved 40% year-on-year. Net interest income increased 8% year-on-year while net interest margins remained stable at 2.85% as growth in low-cost CASA deposits were offset by increasing pressure on loan spreads. Guidance on margins remained unchanged at 2.7%-2.85%. Non-interest income increased 1% year-on-year as higher income from foreign exchange, trade finance, derivatives, credit card business were offset by lower gains from sales in properties and investment securities. Total income in 2015 grew by 5% percent to AED 15,228 billion, adding that the bank's balance sheet strengthened further following an improvement especially credit quality ratios. Loan growth was at 10% year-on-year. Most of the growth in 2015 came from the Islamic finance business which reported a growth of 27% since 2014 and retail banking. In 2015 Emirates NBD reported 11% growth in deposits. Current and Saving accounts grew by 6% year-on-year and made up 56% of the bank s total deposits. Emirates NBD enjoys healthy capitalization levels of 18.0% and 20.7% for its Tier 1 ratio and CAR respectively. Conclusion & Recommendation Emirates NBD, Dubai s 2nd biggest bank by market cap, reported sound net profit of AED 7,124 million for 2015 a 39% increase year-on-year. The bank remains healthily capitalized with a Tier % while the Capital adequacy ratio remains a high 20.7%. It also enjoys decent liquidity which supports the credit profile of the bank, which is further enhanced by implied underlying sovereign support. We view credit direction over the next 6-12 months as neutral. At current trading levels we view ENBDs outstanding debt as cheap, therefore we reiterate our BUY recommendation on the Emirates NBD 5.75% and Emirates NBD 6.375% which have old style Tier 1 structure with no loss absorption trigger and a reset to 6 year mid swap bps and 423.7bps respectively. As a result of lower oil prices a few countries in the region had to adjust their budgets for The UAE however has been quite resilient in 2015 underlining the efforts from the government in the past to increase diversification and to become a less oil dependent economy. For 2016 we would expect challenges for the region driven by oil price volatility. Key downside risks will include continued and prolonged price weakness in oil. 2

3 Emirates NBD Financial and Ratio Summary Issue Maturity Moody's 5.750% notes 1,000 Perpetual NR/NR NR/NR % 5 BUY 6.375% notes 500 Perpetual NR/NR NR/NR % 5 BUY AEDm Balance Sheet S&P Dec-14 Mar-15 Jun-15 Sep-15 Dec-15 Dec-14 Dec-15 4Q14 1Q15 2Q15 3Q15 4Q Loan Portfolio 265, , , , , , , ,417 Loans and receivables 212, , , , , , , ,697 Islamic financing receivables 33,954 35,972 38,749 41,109 43,884 33,954 43,884 43,884 Due from banks 19,812 29,487 38,808 36,728 39,837 19,812 39,837 39,837 Total Deposits 258, , , , , , , ,232 Total Liquid Assets 56,639 50,278 53,408 50,521 54,975 56,639 54,975 54,975 Non Performing Loans 21,111 21,218 20,614 20,302 20,842 21,111 20,842 20,842 Provision for Loan Losses 21,023 22,040 22,627 23,404 23,239 21,023 23,239 23,239 Total Assets 363, , , , , , , ,560 Shareholders' Equity 46,758 46,244 47,676 48,978 50,743 46,758 50,743 50,743 Income Statement Net Interest Income (incl. Provis 1,432 1,453 1,648 1,836 2,156 4,906 7,093 7,093 Net Interest Income (Excl. Provision) 2,473 2,485 2,497 2,591 2,669 9,496 10,241 10,241 Loans Written Off 4, ,480 5,207 2,917 2,917 Net Profit 1,226 1,671 1,646 1,672 2,134 5,139 7,123 7,123 Profitability Analysis Return on Assets 1.4% 1.8% 1.7% 1.7% 2.1% 1.4% 1.8% 1.8% Return on Equity 10.5% 14.5% 13.8% 13.7% 16.8% 11.0% 14.0% 14.0% Net Interest Margin (Incl. Provision) 2.0% 1.9% 2.1% 2.3% 2.6% 1.7% 2.1% 2.1% NIM (Excluding provisions) 3.4% 3.3% 3.1% 3.2% 3.2% 3.3% 3.1% 3.1% Efficiency ratio/cost to Income ratio 33.1% 28.1% 31.2% 31.3% 33.3% 30.4% 31.0% 33.3% Loan portfolio quality NPL/Total Loans 7.9% 7.8% 7.4% 7.1% 7.1% 7.9% 7.1% 7.1% Provision for NPL to NPLs 99.6% 103.9% 109.8% 115.3% 111.5% 99.6% 111.5% 111.5% Loans Written off/total Loans 6.9% 0.7% 1.1% 0.2% 1.9% 2.0% 0.9% 0.9% Capitalization Amount (US$) Ask Price Shareholder's Equity/Total Assets 12.9% 12.6% 12.3% 12.5% 12.5% 12.9% 12.5% 12.5% Capital Adequacy Ratio 21.1% 20.5% 21.0% 20.9% 20.7% 21.1% 20.7% 20.7% Tier 1 Capital Ratio 18.0% 17.5% 18.0% 18.0% 18.0% 18.0% 18.0% 18.0% Risk w eighted assets 220, , , , , , , ,500 Statutory total capital adequacy min 12.0% 12.0% 12.0% 12.0% 12.0% 12.0% 12.0% 12.0% Liquidity Ratios Rating Loans/Deposits 102.9% 106.9% 107.5% 110.8% 108.1% 102.9% 108.1% 108.1% Liquid Assets/Total Assets 15.6% 13.7% 13.8% 12.9% 13.5% 15.6% 13.5% 13.5% Loans/Total Assets 73.2% 75.8% 76.0% 76.4% 76.4% 73.2% 76.4% 76.4% YTC BoS Risk Rating Rec. LTM Source: Company Reports and Bloomberg 3

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