Analysts Meeting / Webcast Transcript

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1 TRANSCRIPT Analysts Meeting / Webcast Transcript EMIRATESNBD.DU Q Emirates NBD Results Announcement Event Date/Time: October 24, 2011 / 16:00PM UAE, 12:00PM GMT 1

2 Oct 24, 2011 / 12:00PM GMT, EMIRATESNBD.DU - Q Emirates NBD Earnings Presentation FINAL TRANSCRIPT CORPORATE PARTICIPANTS Rick Pudner Emirates NBD - CEO Surya Subramanian Emirates NBD - CFO Ben Franz-Marwick Emirates NBD - Head, Investor Relations PRESENTATION Hello everybody, and apologies for the delayed start. Welcome to the Emirates NBD third quarter analysts and investor meeting and also welcome to all of you joining us through the live webcast as well. Let me start the proceedings by introducing the main speakers today. The meeting will be led by our Chief Executive Officer, Mr. Rick Pudner on my immediate left and supporting him today are our Chief Financial Officer, Surya Subramanian on the far left and of course myself. For those of you who don't know me, I'm Ben Franz-Marwick and I manage Investor Relations for the Bank. We are also joined here today by members of the Emirates NBD senior management team, who are mostly sitting on the front row. And we're also extremely pleased to have present with us today the CEO of Dubai Bank, G-J Van Der Tol, and also the CFO of Dubai Bank, Ahmed El Shall. Now the format for this meeting will follow the usual format from the previous quarters. Essentially, we'll be running through a prepared presentation which you would have seen already on our website, but we'll run through that reasonably quickly and highlight some of the key areas, after which we'll open it up for a Q&A session. At the end of the proceedings, you will have the chance to mingle with ourselves and the senior management outside and we'll have some refreshments there. So without further ado I'll hand you back to Rick. Thank you, Ben. I'd like to also extend a warm welcome to all of you who have made the time to join us and also via the webcast. Before we delve into the details of the presentation I would like to take a few minutes to reflect on the main highlights of these results. The key message I want to leave you with is that the Bank has delivered a very robust set of financial results, with net profit for the first nine months up 20% over the same period of This profit growth was achieved through continued strength and resilience in our operating performance and despite adopting a significantly more conservative approach to de-risking the balance sheet during the year. It is worth expanding a little on each of these aspects. In terms of the operating performance, as I mentioned, the Bank has continued to deliver strong levels of operating profitability, as we've adjusted rapidly to changing dynamics through alignment of the various operating levers that we have at our disposal. This also demonstrates our ability to take advantage of gradually improving economic conditions and to deliver on a clear strategic course. In Q3 specifically this has resulted in a 14% rise in net interest income, both quarter on quarter and year on year, and a 2% to 3% rise in core fee income over comparable quarters. At the same time our cost income ratio has improved to 32.6% in quarter three, from 33.8% during the first half of In relation to our more conservative approach to balance sheet de-risking, this has manifested itself in two main areas during the first nine months of the year. Firstly, during the year to date we significantly boosted our general provisions, adding AED1.5b in total and taking the stock of general provisions to AED3.7b, or 2.45% of credit risk weighted assets. 2

3 Oct 24, 2011 / 12:00PM GMT, EMIRATESNBD.DU - Q Emirates NBD Earnings Presentation FINAL TRANSCRIPT Secondly and, importantly, we have taken a much more conservative stance on credit provisioning, led by our desire to target a higher overall impaired loan coverage ratio. The obvious question you will undoubtedly have is why have we taken this more conservative view on provisions? So I will address that now up front. Essentially, our motivation is driven by a few key considerations. The first one is management's desire to be more conservative given where we are in the economic and credit cycle. The second one is continued uncertainty in global financial markets. While these do not impact us in terms of direct exposure, they are starting to have an impact on the local economy and have resulted in a more cautious and uncertain outlook. Third, the prolonged uncertainty surrounding the property market in Dubai specifically. While further downside risk in the Dubai property market appears reasonably limited, in our view it will take some time for recovery in this sector and, hence, tail-end risk remains a concern. And also our desire to take a more conservative view and build up a buffer for tail-end risk on certain interestonly impaired accounts. With that, I will hand over to Surya to start going through the details of the presentation. Thank you, Rick. I'll take the slides and the numbers in the slides that have been made available to you as read and touch on some of the key dynamics in each of these slides. Looking first at slide three, which is under Q3 financial results highlight, we have taken advantage of the lower Eibor, coupled with effective balance sheet management, to drive net interest income for the quarter to deliver one of the strongest quarters for total revenue over the past 12 months. Costs are well contained within our target range of 33% cost income ratio and Ben will share more on that later in this presentation. Impairment allowances reflect our conservative stance, as highlighted by Rick. And you'll recall that in the Q2 results call I had signaled we will share more of our internal deliberations on desired target coverage and impaired loan ratio during this Q3 results call. Ben has the details coming up shortly, but I emphasize Emirates NBD's capacity to deliver on a strong operating profit to provide returns for our shareholders, even as we position ourselves to come out stronger from the effects of the financial crisis. We have also seen loan pickup this quarter across both corporate and retail segments, while the deposit drop mainly reflects movement in on-tap, price-sensitive, wholesale funds. A comment I want to share with this audience; when we provided the results for Q2 there were some questions on one-off income, especially on the non-funded income through the tier-two swap. And I had shared with the floor that for a bank of our size we do have flows that generate income and I did not see that as a significant happening. I am happy to state and share that Q3 results do not have any one-offs and, yet, the total income is much higher than in previous quarters, including Q2. Picking on, on my comment on the balance sheet management, which leads us to slide four, we see the positive and significant impact on net interest margin for the quarter arising from our balance sheet management efforts. It is fair to say that, unlike in past quarters where deposit spreads contributed to higher net interest income, it was loan spreads supported by a lower average Eibor that boosted net interest income in Q3 this year. We do expect some normalization in Q4 as loan rates reset and the average could drop closer to a more sustainable 2.5%. With that, I hand you over to Ben to take us through the next few slides on non-interest income and costs. Thank you, Surya. Looking firstly at non-interest income on slide five, you will see that the headline non-interest income has shown a decline of approximately 24% year on year, 22% quarter on quarter. Now, this was principally driver by two main factors. 3

4 Oct 24, 2011 / 12:00PM GMT, EMIRATESNBD.DU - Q Emirates NBD Earnings Presentation FINAL TRANSCRIPT First of all, the investment income -- investment securities income came in at about AED54m for the third quarter, which was comparatively lower to a relatively higher income from investment securities in both Q and Q Now, this was principally impacted by, clearly, some of the turmoil that you've seen in European markets, which have affected or resulted in weaker equity markets both locally, regionally and globally, and also widening of CDS spreads locally. And, clearly, this has had a dampening impact on investment securities income in this quarter. The second impact impacting the headline number has clearly been, and this is what Surya referred to earlier, the non-recurrence of the one-off gain that we had in Q2, the AED160m gain we made on the lower tier-two debt offering. After stripping out some of these one-offs and non-core items and looking at core fee income you see some encouraging trends. First of all, it's up 1% year on year, but, more importantly, it's up 3% quarter on quarter, driven principally through a pickup in new underwriting and fees associated with new underwriting. And this has been despite the usual seasonality that you see around the summer period and Ramadan. Moving on to operating costs and efficiency on slide six, you will recall from our discussions in these meetings in the last two quarters that the Bank is increasingly shifting its focus to revenue generation and growth across our different business lines. And as a result, as you will recall from Q1, we increased and accelerated our investment in our front-end capability, particularly in retail, and this has resulted in an initial tick up in our cost income ratio in Q1 to above 35%. Now, as we've been saying for the last two quarters, we were expecting to manage that down as we reap the benefits of some of this investment in terms of an improved income line and that is exactly what you've seen in both Q2 and Q3. On a standalone basis Q2 and Q3 cost income ratios were both within our target range of 32% to 33% and, as a result, the year-to-date cost income ratio is gradually moving down towards that position. Moving next to credit quality on slide seven and this is quite a busy slide. And, as always, there's quite a few to discuss and explain around this slide, so if you bear with me I'll go through this in quite a bit of detail. Let me start by discussing our new targets for impaired loan coverage ratios. As Rick explained earlier on, we are being more conservative around provisioning and are targeting higher overall impaired loan coverage ratios. And this is due to the fact that we feel there are still uncertainties and tail-end risks out there and we wish to build up sufficient buffer to be able to manage these. As a result we are now targeting towards, or aiming towards two targets in relation to impaired loan coverage. In terms of underlying book -- and with underlying book I mean excluding so-called interest impaired renegotiated loans. And for those of you in the audience here and elsewhere you will know these as principally Dubai World and Dubai Holdings. So excluding those we're aiming towards a coverage of 80% to 85% and, as you can see, in Q3 we've achieved and are within that target range. Now, the rationale for that target is very simply that we do carry a certain level of collateral against impaired loans. And if you were to build that in, then an 80%, 85% coverage effectively translated to 105% to 110% coverage if you include the value of tangible collaterals within that equation. And that, to us, is sufficient and comfortable and we're happy with that. So that's the range that we aim to have the underlying coverage within as we move forward into next year. On the overall book you can see from the slide, i.e., including the interest impaired renegotiated loans, we're aiming towards a coverage of 55% to 60%. As we're now at 45% you can tell there's still some way to go in achieving that target, but this -- we currently expect this to be achieved by Again, the rationale for this target is that over time we will build a sufficient buffer to -- for tail-end risks associated with both interest impaired renegotiated loans, but also residual uncertainties around the economic outlook and the property markets in Dubai. Now, in order to achieve these targets both in Q3 and going forward we are being more conservative around, firstly, the recognition of impaired loans and, secondly, the level of provisioning we're making against those loans. And you can see that in the numbers for Q3. In addition, as we go through the rest of the year 2011 and -- sorry, 2012 and 2013, we will continue to boost general provisions in order to create that buffer for these uncertainties. Turning next to the trend in impaired loans, you will see what we've split out for you is the underlying book from the interest impaired renegotiated loans and I'll take each of these in turn. 4

5 Oct 24, 2011 / 12:00PM GMT, EMIRATESNBD.DU - Q Emirates NBD Earnings Presentation FINAL TRANSCRIPT If you look at the underlying book there has been an increase in the NPL ratio from 4.8% to 6.2%, essentially, an increase of 1.4%, or, in absolute numbers, AED3.1b. Now, this is an example of what I said earlier. We're being more conservative in recognizing impaired loans. And it's important to stress that this is not an emergence of new problem loans. These are loans that were in our watch list for some time and for which we're now being more conservative and more prudent in terms of recognizing them as impaired loans and providing for them. Now, of the AED3.1b increase in impaired loans on the underlying book, just over AED3b is related to our corporate portfolios across both the Islamic and the conventional franchises, while retail remains pretty good in terms of new NPL formation, which has been less than AED100m quarter on quarter in terms of the additional NPLs. Regarding the interest impaired renegotiated loans, you will see the progression there of certain entities that have come into that ratio and out of that ratio. Suffice it to say that for Q3 we've now impaired the second entity in the Dubai Holdings stable, which added AED4.8b to the impaired loan ratio and for which we made a specific provision of AED950m. For the record, we have now made full provision and included in our impaired loans and impairment allowance the full estimated impact of both the Dubai World and Dubai Holdings restructurings, so that is now effectively behind us. Turning, finally, to the impairment charge for the third quarter, that came in at AED1.5b in terms of the P&L charge and, again, I'll break that down for you. As I mentioned earlier, we provided specifically AED950m in relation to that second Dubai Holdings entity. On top of that we made approximately AED350m of specific provisions for new NPLs that arose during -- on the underlying book during the third quarter. On top of that another AED350m approximately that we provided for NPLs that were already in existence, again, reflecting the fact that we're being more conservative in providing for our impaired loans. And, finally, we only made a very small release out of general provisions. As you will recall, we built up a substantial buffer in our general provisions during the first half of the year and decided not to release much out of that, principally again reflecting the fact that we wish to have a very comfortable underlying coverage ratio of between 80% and 85%. And, with that, I'll hand you back to Surya to give some concluding remarks on this slide. Thanks, Ben. It is important to note that impairment allowances in 2011 are consistent with our targets for loan loss coverage. You will appreciate that it is a first for any bank in this region to be targeting near-term coverage ratios and this is being done to share our provisioning philosophy that is expected to see us as a much stronger Bank in two years from now. Do note that, while we have shared the target range, the actuals in each quarter may vary a bit around that range. We are still expecting our impaired loan ratio for 2011 to remain within the previous guidance of 13% to 14%. So it is worthwhile stressing that our assessment of the underlying risk in the credit book remains unchanged and the impairment charge, therefore, reflects only increased conservatism. Going forward, and based on the scenario shared earlier by Rick, our targets assume a minor uptick in impaired loan ratio by about one percentage point each year. Ben and Surya have shared with you the details which, in essence, reflect management's desire to be more conservative given where we are in the economic and credit cycle, while maintaining a positive return for our shareholders and without negative impact to our strong capital ratios, as shown on the next slide, slide eight, of the presentation. Briefly summarizing the slide, our capital ratios remain at extremely comfortable levels, at 21.1% total capital and 13.4% for tier one. 5

6 Oct 24, 2011 / 12:00PM GMT, EMIRATESNBD.DU - Q Emirates NBD Earnings Presentation FINAL TRANSCRIPT Moving on to slide nine in terms of funding and liquidity, we have seen some tightening of liquidity in the third quarter, resulting in increased competition for deposits in the sector. We have, however, maintained discipline on deposit pricing and have let some price-sensitive deposits go, resulting in a temporary increase in our headline loans-to-deposit ratio to above our target range of 95% to 100%. We will look to bring this back towards the target range in the next few months. From the maturity profile you will see a relatively large maturity of AED8b due in As we have demonstrated before, this is well within our normal funding capacity and we remain comfortable with our liquidity position. Having said that, we will continue to look for opportunities to refinance both the conventional EMTN and alternative markets, but we will retain our discipline on pricing in this regard. In terms of the divisional performances, slides 10 and 11, I will not go through in details of each division. However, there are a few trends which are worth pointing out as they illustrate some of the points we were making earlier. Firstly, in terms of loan growth we mentioned previously that we had seen a moderate pickup in new underwriting, resulting in 2% growth in gross loans during the third quarter. In these slides you can see that Wholesale Banking was the primary contributor to this, with loan growth of 3% in Q3. Importantly, we're now also seeing growth in our Retail portfolio, with growth of 2% during Q3, reversing the declining trend from previous quarters and showing that some of our investment in that division is now starting to pay off. Offsetting some of this growth in conventional credit is still the continuing decline in Islamic financing, given relatively fewer good quality underwriting opportunities in that space. Secondly, in terms of the 8% decline in Group-wide deposit balances during the third quarter, this was primarily in our Corporate franchises, both Conventional and Islamic, while Retail balances have remained fairly stable. This illustrates our previous point that the drop in deposits has been in the more expensive time deposit category, while more stable, cheaper and behaviorally longer-term casa deposits have remained broadly stable. Going on to slide 12, you will recall that we provided a detailed update on progress in relation to our strategic imperatives at the halfyear stage. We intend to provide these on a half-yearly basis, so will next update you in detail at the full-year stage. At this point I would just reiterate that we are working towards the same imperatives that we have been communicating to you since the beginning of the year and we continue to make good progress across many fronts. However, there are two key strategic initiatives that I would like to comment on at this stage. Firstly, we will have seen the announcement last month on the establishment of Tanfeeth, which is a fully-owned subsidiary that aims at consolidating the Group's various back-office and operational teams under one management, re-engineering our processes and introducing global best practice tools and technologies that will improve efficiency and enhance the quality of service we offer our customers. This initiative is still in the relatively early stages so is initially not expected to have a material financial impact on the Group and we will update you in more detail on this initiative when it is further advanced. Secondly, more recently you will have seen the announcement made on 11 October that Emirates NBD has taken over Dubai Bank. This is in line with the Government of Dubai's efforts to enhance the banking sector in the Emirates and their dedication to take the necessary measures to empower financial institutions to fully operate in a way that serves the national economy and consolidates the countries position as a first-class international hub. The transaction is expected to complete in the fourth-quarter 2011 and is against the cash consideration at fair value of the entity acquired. Upon acquisition emirates NBD's balance sheet footing is expected to grow by approximately 6% without any impact to its net profit or non-performing loans ratio as on the date of the takeover. More detail on the financial impact and the transaction structure will be provided in our Q financial results. Page 12, a brief summary of the outlook, and I think the key statement here is, while conditions in the local economy improved in the first half 2011 global economic developments in the third quarter of this year are starting to have an impact on the local and regional activity. 6

7 Oct 24, 2011 / 12:00PM GMT, EMIRATESNBD.DU - Q Emirates NBD Earnings Presentation FINAL TRANSCRIPT GDP for the UAE growth still remains about -- estimates about 4.6%, largely on the back of higher oil production. Dubai's oil output continued to expand in the third quarter and is 8% higher than average 2010 output. Some of the data showed a sharp slowdown in the private-sector activity in the third quarter, whilst it was growing relatively strong in the first half of Domestic liquidity conditions improved again during the first half of 2011, although, as I said before, the third quarter witnessed some evidence of tighter liquidity conditions and sectoral deposit growth slowing, bank deposits also declining with the Central Bank. So these are the facts -- some of the factors that are obviously having an impact in the third quarter, hence, our probable more cautious stance going forward. But beside the more cautious and uncertain outlook we feel that Emirates NBD is resilient and well placed to take advantage of the growth opportunities in selected areas. In summary, we feel we have delivered a robust operating performance, with stable pre-impairment operating profit at AED1.8b for the third-quarter Top-line trends for the third quarter are encouraging, with 13% year-on-year and quarter-on-quarter growth in net interest income and growth in core fee income of 1% year on year and 3% quarter on quarter. Continuation of the balance sheet de-risking is underway and increased conservatism on provisioning has resulted in increased impairment allowances of AED1.6b for third-quarter Our capitalization levels and liquidity levels continue to be extremely strong, offering resilience and flexibility for the future. We know we have a clear strategy in place to take advantage of selected growth opportunities. Thank you very much. With that, we can start the Q&A session. If you are in the audience and you do have a question I would appreciate it if you could stand up and wait for the microphone to be passed to you, and also if you could introduce yourself and the company that you're representing. For those of you on the webcast there is a platform there where you can type in your questions and we'll read those out to the extent that they haven't been answered yet towards the end of the Q&A session. So, please, if you have any questions? 7

8 QUESTION AND ANSWER Rahul Shah - Deutsche Bank - Analyst Rahul Shah from Deutsche Bank. I had some questions on asset quality. Thank you for the detail that you've given so far. I just wanted some clarification in a number of areas. You mentioned that non-performing loans increased by around AED3.1b in Q3, but you also said they were essentially watch-list loans, so I'd just like some confirmation as to whether they are in arrears for 90 days or not. Second question, you're indicating that impaired loans for loans will go from 13% to 16% over the coming years. Is most of that increase likely to be non-performing loans, given that you're indicating your GRE impairment issues are largely behind you? And third issue, Dubai Holding, the piece that you provided against in Q3, it looks as if the provision is around 20% of the balance. Previous provisioning that you have taken has been roughly half of that, so I'm just wondering why the difference this time. Thank you. Yes, talking, firstly, about the AED3.1b extra provisions, as I said earlier, of that AED3.1b in terms of the underlying book about AED3b is corporate exposure across both Islamic and Conventional lending franchises, and then just less than AED100m is from Retail. Now, in terms of that, when I was saying that these were essentially accounts that we're really watching, they were not necessarily watch-list accounts in terms of the definition of watch list. But they were certainly accounts that we were aware of since the beginning of the year as having potential problems. So the classification of what is a watch-list account or what is not a watch-list account, what's past 90 day, not impaired, what is renegotiated etc., these are very specific definitions. So when I say watch list I mean it more in a generic term, rather than the strict classification term. So I'm talking generally about accounts that we have been aware of as having potential issues for some time now. So in terms of the outlook going from 13%, 14% to 15%, 16%, we are not at this stage specifying whether these will be interest impaired loans or whether these will be non-performing, i.e., capital or principal impaired loans as well. I think a lot of that will depend on the outcome of some of these negotiations as we go through the next few years. So it's difficult to estimate at this point for some of the smaller accounts whether that will be an interest-only impairment or principal impairment. So at this stage we are just giving guidance in terms of the overall level and where our coverage is going from there. And, finally, in terms of the second Dubai Holdings entity, yes, you are right. It's about 20% provision, which is less -- which is higher in relative terms to what we did for the first entity and also for Dubai World. I guess the devil is in the detail in terms of how the renegotiation works, so some end up being -- having, on an NPV basis, a bigger haircut than others. So it is really about the detail of the underlying renegotiation. I should stress, though, that the entity that we have now provided for in Q3, that hasn't been signed and finalized yet. This is our best estimate of the expected or incurred loss at this point in time. Shabbir Malik - EFG-Hermes - Analyst Hi, I'm Shabbir Malik from EFG-Hermes. I have a question about asset quality. In terms of your guidance you expect NPL ratio to go up from 13% to 16% by But can we assume a similar trend for Dubai Bank and, if that is true, do we see that impacting your financials going forward? 8

9 July 25, 2011 / 16:00PM UAE, 12:00PM GMT, EMIRATESNBD.DU Q Emirates NBD Results Meeting/Webcast TRANSCRIPT Well, in terms of Dubai Bank it's first worthwhile to reiterate that at the point of acquisition there is no impact to our non-performing loan ratio because of the transaction structure. We have stated this on the date of the takeover and we repeated it in our press statement today as well. Now, there could be what I call a natural flow into impaired loans in any good book. To that extent, we will manage the portfolio. We take over from Dubai Bank as part of our regular portfolio. And the guidance that we give you going forward, 14% to 15% one year later, 15% to 16% two years later, is a consolidated view for the Group that will now include Dubai Bank as well. Any other questions? Raj Madha - Rasmala Investment Bank - Analyst Hi, this is Raj Madha from Rasmala. I'm just wondering about the balances with related party. There's been quite a large growth in loans to ICD. Quite a large proportion of the reduction in deposits is related to ICD also. Did we say ICD, or did we say related parties? Raj Madha - Rasmala Investment Bank - Analyst Ultimate parent. The ultimate parent I think you reported. Thank you. Ultimate parent takes us through a series of families, but, yes, we did make that disclosure. Ben, do you want to comment on that? Well, I think this is -- clearly, we can't comment on individual transactions with individual counterparties, so I'm not at liberty to say what this money was utilized for or not. But, yes, those are in the related-party disclosures and, yes, approximately half of the deposit drop was from that one account. And, equally, some of the lending growth is on account of that, but not as much in terms of percentage weighting. Raj Madha - Rasmala Investment Bank - Analyst And is the [second] relationship true (inaudible), or is that more generic across the board? The loan growth has been generally across the board. You can see 3% growth in gross loans in the Corporate segment and 2% growth quarter on quarter in Retail. So we've actually seen growth across different segments. And if you look at the sectoral breakdowns there's been growth across transport, communication, services and investment holding 9

10 July 25, 2011 / 16:00PM UAE, 12:00PM GMT, EMIRATESNBD.DU Q Emirates NBD Results Meeting/Webcast TRANSCRIPT companies as well. So it's been pretty broad based across those sectors. Clearly, we are still seeing some contraction in real estate lending, though, as we -- our risk appetite is still reasonably limited there. Raj, I'd add to that, during our Q2 call there was a question on growth and loan commitments and the disclosures in the financial statements. And we did say we were getting geared to see draw downs against that. So to that extent that has played through in Q3 and we expect that there will be some more flow through in Q4 coming out of those loan commitments that are on the books. And to add to that, in fact, the un-drawn loan commitments have actually increased again in Q3 over Q2, so, again, that bodes well for some element of loan growth in the fourth quarter. Rahul Shah - Deutsche Bank - Analyst Just a question on your more conservative assessment of the loan growth outlook, which I think you mention in one of the slides and highlighted that as one of the reasons for giving this guidance of 15% to 16% impaired loans to loans. I'd just be interested in what your view was previously and what is it now in terms of loan growth. I think our estimates going forward in terms of loan growth probably in the region of 1% to 2%. I think we are slowly seeing the signs of increased business activity, as Ben was saying, across some of the sectors, so we are looking at about 1% to 2% as we go forward for the next 12 months or so. Rahul Shah - Deutsche Bank - Analyst Thank you. And, sorry, just to add to that, I think previously we were probably a bit more bullish on that. So at the beginning of the year we were probably talking about 4%, 5% loan growth for this year. As it's been year to date it's been flat; we saw declines in the first half and an uptick in the third quarter. We will maybe see a small uptick in the fourth quarter, but overall, year on year, it will still be relatively subdued, relative to a 4%, 5% expectation at the beginning of the year. Similarly, we were probably expecting somewhere between 5% and 10% into 2012 and I guess that will be slightly lower than that as well at this point. But a take off from that, Rahul, again during the Q2 call there were some concerns around asset growth and I had shared in my commentary that people should also look at where deposits are growing and deposit prices are growing. So effectively we are managing a balance sheet out here. We've still managed to deliver some robust top-line growth, notwithstanding some static -- what you can say headline static movement in the balance sheet. I think that exhausts the questions. No, there's one more question over there. 10

11 July 25, 2011 / 16:00PM UAE, 12:00PM GMT, EMIRATESNBD.DU Q Emirates NBD Results Meeting/Webcast TRANSCRIPT Shabbir Malik - EFG-Hermes - Analyst Shabbir Malik, EFG-Hermes again. The NPL ratio increase from 13% to 16%. Will this include any other GREs and can we expect some recoveries going forward? Okay, just a caution on what it includes and what it doesn't include. This is more of a target that we are looking at depending on what we see the outside environment to be, the loan growth and where we see natural flow through of impairments in the book. Clearly, if it was impairment we were aware of today it would be in the books today. So let's just be cautious about that forwardlooking view. So we cannot actually tell you today that it's GRE A or non-gre corporate B. But as we go along if there are any big names you will get to hear about it in the market, or we would tell you in broad terms sectorally where it comes from. Shabbir Malik - EFG-Hermes - Analyst The other question was about recoveries (inaudible). It's natural to expect recoveries once the cycle is through, which is why, if you are looking at longer-term trends, coverage ratios of 70% to 80% are quite okay, because you'd always get $0.20 to $0.30 in the dollar once the seven-, eight-year cycle is over. But will we get recoveries today? Will we get recoveries tomorrow? We have to wait for this cycle to play itself out. Any other questions from the floor? Okay, then, we'll move onto the webcast questions. We've got a couple of questions from Deepak Tolani from Invest ID. He mentions, can you please clarify the release of AED600m from general provisions? Without this release the bottom line would have been drastically negative. Now, just to clarify, we show two PIP lines or general provision lines in our detailed disclosures in the appendix, so one of those lines shows a release of AED600m. The other shows an increase of almost AED500m, so the net release in our portfolio level provision was only AED100m during the quarter. So it doesn't actually alter the profitability at all. The second question is can you drop on -- can you comment on the sharp drop in Islamic banking activity? I think it's fair to say that Islamic banking generally has been under pressure over the last year and a half, two years, given the nature of the business. There's a second part of that. There's a second part and that says what is the -- what does this mean for the outlook for Dubai Bank Sharia business? 11

12 July 25, 2011 / 16:00PM UAE, 12:00PM GMT, EMIRATESNBD.DU Q Emirates NBD Results Meeting/Webcast TRANSCRIPT And obviously we are addressing that. There have been management changes in the Emirates Islamic Bank. There have been Board changes as well to address the slowdown in terms of business there, to regenerate a revised business model. Obviously, now, with Dubai Bank also on board in the stable, it gives us the opportunity to look at a wider Islamic banking proposition. It gives us a bit more scale in what is relatively a fragmented -- still a fragmented market. So there are very positive signs of welcoming Dubai Bank into the stable and looking at the Islamic platform as we go forward. But there's no planned changes in terms of structure, as we said, I think, at the announcement of incorporating Dubai Bank into the Group. As we are, we'll just -- we will operate as we currently stand. And then there's a next question from Ankur Shah from Arqaam Capital, He's asking can you disclose which entity in your Dubai Holdings exposure was derecognized in Q2 2011? And I'm afraid we can't disclose that. As always, we don't really disclose individual customer names and relationships. I think we've gone -- been quite transparent in at least saying these are part of the Dubai Holdings' stable and I think we'll leave it at that. There's another question from Ankur Shah. Let me just read it first. For the second Dubai Holdings exposure when do you expect the restructuring to be finalized? Is it possible that the ultimate restructuring could result in a more severe haircut? We're working on what we know in terms of the discussions on the restructuring so far, so working along the lines of the Dubai World template that was agreed last year. There is always a potential for a change in the assumptions on these. We don't what the end date in terms of the final date for conclusion of the restructuring is of Dubai. But we'll keep you informed as we go along. We also have a question from Aybek Islamov from HSBC. Can you provide me with some qualitative color on the investment portfolio, the maturity profile and potential reinvestment returns you expect going forward? We've talked about the investment portfolio in quite a lot of detail in previous quarters, particularly in the 2008 year and 2009 year, when that was -- we took some heavy impairments and write downs on that investment portfolio. I think the strategy since that time has changed drastically. First of all, the absolute balance of the investment portfolio is now AED14b, AED15b, versus probably AED19b, AED20b in 2007/2008. So, first of all, we've impaired what we need to impair. We are now left with reasonably good quality assets. Two-thirds of that portfolio and a large part of that is our liquidity buffer. We do carry a significant portion of highly-rated, liquid, repayable securities with central banks that we use as our liquidity buffer. So essentially we are now in a situation where we have got an investment book that is managed, A, for liquidity purposes and, B, what's left of some of the strategic stakes that we have historically held. So at any point in time the movement and the investment income that we generate from that is more of a function of what's happening in the investment markets in any particular quarter, rather than any legacy positions that we are still dealing with at this point in time. 12

13 July 25, 2011 / 16:00PM UAE, 12:00PM GMT, EMIRATESNBD.DU Q Emirates NBD Results Meeting/Webcast TRANSCRIPT Another question from Nancy Fahmy from Beltone. You have previously given a net income guidance of AED4b for full-year '11. Could you please give us guidance in light of three -- the third-quarter numbers now, and may we be expecting bottom line growth going forward? Yes, I'll take that one. I think just to roll the clock back a little, when we reported Q1 results with the profit on part sale of the network transaction, the market had come to a consensus of profit for the year of around AED4.2b or thereabouts. As we came closer to the Q2 call some analysts and some market players had moved that consensus closer towards AED4.5b, but they hadn't estimated the higher provisioning that we would take in Q2. And the conversation we had in this room, I recall, was more of a delta conversation that if you take the delta between the market estimates of provision and what we actually booked in Q2 would give you a mathematical consensus of AED4b at the end of Q2. Now, what has changed since then, again, is the variance in consensus between what market expected on provisions and what we have booked as provisions in Q3. Also, on the positive side I think the consensus on our top-line revenue was much less than what we actually delivered. So it would be fair to say, looking into Q4, given where we are on the messages we shared around coverage ratios, impaired loans ratios from a provisioning perspective Q4 could well be a repeat of Q3. I am also hoping that from a revenue perspective Q4 will be a repeat of Q3. So we should hopefully beat expectations, or at least beat ourselves, with fingers crossed. I'll leave those hearing the call to work the math with that information. I think that wraps it up for the webcast questions. Any final question from the floor? No, okay. Well, thank you very much for joining us today, either live or on the webcast and please feel free to join us for some refreshments outside. Thank you. Thank you. 13