Transcription Analysts and Investor Conference Call. October 22 nd, 2012

Transcription

1 Transcription Analysts and Investor Conference Call October 22 nd, 2012 Conference Call Operator Agate Ladies and gentlemen, welcome to the Emirates NBD Q results analyst and investor call. If you re all ready to begin, I will now pass the call over to our host, Mr. Rick Pudner, CEO of Emirates NBD. Mr. Rick Pudner, CEO, EMIRATES NBD Thank you, operator. I d like to welcome all of you to the Emirates NBD Q result conference call. Supporting me in today s are Surya Subramanian, the Bank s Chief Financial Officer, and Ben Franz-Marwick, our head of investor relations. Together, we will review the operation on financial highlights for Q We will be taking you through a presentation which has been made available to you earlier today. After which, there will be the usual opportunity for you to ask any questions. Before we go through the details of the presentation, I would like to highlight the key messages of these results. First, I am pleased that the bank has delivered a stable set of financial results for Q with net profits for the quarter at AED 640 million, broadly stable compared to both Q1 and Q2. 1/27

2 This stability in profitability was primarily achieved by continuing to actively manage the various operating levers we have at our disposal. For example, while we have faced loan spread compression during the previous quarter, we have reversed the trend in the current quarter through active ALM management. In addition, we have sustained our focus on cost optimization, with the level of operating costs in Q3 now being AED 150 million below the cost base of Q In terms of asset quality and provisioning, the experience in Q3 has been in line with our expectations. Impaired loan formation was modest during the quarter but we have continued to boost provisions to improve our overall coverage ratio. In addition, similar to the previous two quarters, there has been no need to take any further write-downs on either associates or investment properties. The quarter also saw a further improvement in our liquidity and funding position as our loan to deposit ratio was maintained within our target range of % and we continued raising medium term debt at attractive pricing, taking the total raised during the first half of the year to almost AED 12 billion. By the same token, the level of cash and Central Bank balances have now reached almost AED 30 billion which represents 11% of our total liabilities and hence we are comfortably placed relative to the new Central Bank liquidity regime. With that, I will hand you over to Surya to start going through the detail of the presentation. Mr. Surya Subramanian, CFO, EMIRATES NBD 2/27

3 Thank you, Rick. I will speak through slide 3: the financial results highlight. We continued to deliver the consistent and high level of pre-provision operating profit, aided this quarter by an unexpected rebound in net interest margin, positive performance in our Islamic banking arm and our continued focus on cost. Overall, net profit at AED 640 million is consistent with the upper bit performance. Net interest margin for the quarter improved as expected, resulting in a peak up in interest income by 6% quarter on quarter. The primary driver for this being, for asset margin improvement on the back of some focused ALM management. Headline Loans to deposit ratio remained stable at 99% and we reiterate that Emirates NBD is well placed to be in compliance with the UAE Central Bank circular on liquidity. All fees were lower during a slow summer although components such as trade finance fees appear stable. Costs remain an area of focus for management and are lower by 2% as compared to the previous quarter, and lower by 15% as compared to Q This has been achieved without any disruption to our channel efficiency or customer service. Provisions are in line with our previous guidance to de-risk the book. Moving on to slide 4 on net interest income. Net interest margin at 2.35% for the quarter improved by 7 basis points over the previous quarter and reflects the anticipated correction we signalled during our Q2 calls. The higher cost of EMTN s rate earlier during the year also came in as expected in Q3 and we do not expect any further contraction on this count given that we have met our internal target for fund raising. 3/27

4 While retail deposits continue to grow at a healthy pace, the more than offset other high cost deposits that ran off the book neither guide our full year net interest margin a bit lower by 10 basis points from 2.50% to 2.40%. Moving on to slide 5 on funding and liquidity. As of end September 2012 Emirates NBD successfully raised AED 11.9 billion through private placements and multiple public offerings which were very well received by the market. We have earlier indicated that we have raised more than enough to repay maturing debt falling due later this year and indeed, of the AED 6.7 billion due for repayment in Q4 2012, we have already repaid AED 5.4 billion as of date through internal resources and without the need to go to market. Our liquid asset position is strong and stable at AED 48.2 billion and represents 16% of total asset. Looking forward to 2013, the bulk of the maturities are private placements that we have raised earlier this year. And these will be either rolled over or repaid in the natural course of business. Moving on to slide 6 on loans and deposits trends. We continue to see positive signs of good quality underwriting though growth for the year itself is in line with our expectation of low single digit expansion. As in previous quarters, current and savings accounts of CASA growth continues to be a success story and offers greater stability to our funding base. With that, I hand you over to Ben for further analysis. Mr. Ben Franz-Marwick, head of investor relations, EMIRATES NBD Thank you, Surya. Looking now to trends and non-interest income on slide 7, we can see that headline NFI improved by 21% on a year on year basis and declined by 8% on a quarter on quarter basis. We also see that the headline numbers were aided by 4/27

5 higher investment securities income during Q3 relative to the comparative quarters. Excluding which, core fee income was relatively stable year on year but still down 17% quarter to quarter. This decline in core fee income relative to the previous quarter was mainly as a result of seasonality associated with the summer period and Ramadan, particularly in the forex rate brokerage and asset management categories of income. Banking fee income and trade finance income however have held up very well despite the seasonal impact and are showing a steadily improve in trend over the last four quarters. Moving on to slide 8. Of course, we can see, as mentioned earlier, cost efficiencies are a key highlight for this quarter with costs having declined a further 2% from the previous quarter and with a the Q3 cost base now being 15% or AED 150 million below the Q cost base Reduction in costs was primarily driven by lower staff cost as a result of the staff optimization exercise conducted in Q As mentioned in the previous quarter, this exercise is expected to save cost of around AED 140 million on annualised basis while the saving in 2012 are expected to be in the region of AED 80 million. In addition to staff cost savings, we also see cost saving steadily been realised in Dubai bank. And their cost base is now 25% below the cost base acquired in Q While these cost efficiencies are evidently coming through, the cost in income ratio for 2012 to date of 35.2% remains above our longer term target range of 33% to 34%. We remain committed to managing this ratio towards those targets in the longer term. Moving on to credit quality on slide 9. You can see the previsioning in NPL trends during Q3 have been in line with our expectations and our previous guidance. The 5/27

6 NPL ratio increased modestly around 10 basis points during the quarter, taking the total increase year to date to 60 basis points. Clearly in line with our expectation of around 1% increase during the full year The increase in the absolute number of NPL during Q3 of about AED 900 million was primarily driven by the recognition of new NPL of around 600 million in our conventional corporate portfolio and another 200 million in our Islamic corporate portfolio. As expected, the retail portfolio continues to perform very well and NPL formation in retail was negligible. In terms of the impairment charge for the quarter, this came in as just over AED 1 billion, driven mainly by specific provisions of around 730 million in our conventional corporate book and another 150 million in our Islamic financing book. This further improved the coverage ratio about 2% to take it to 48% on an overall basis. And this takes the overall improvement in NPL coverage for the year to date to 5%. ExcludingIIRLS, the coverage ratio improved by 1% quarter on quarter to 71%. At the end of Q3, our total portfolio impairment allowances will generate provisions amount to AED 3.67 billion or 2.6% of credit risk weighted assets which exceed the Central Bank requirements of 1.5% by almost AED 1.6 billion. With that, I hand you over to Rick to run through the remainder of the presentation. Mr. Rick Pudner, CEO, EMIRATES NBD Thanks, Ben. On page 10, just to highlight the capital situation, our capital adequacy ratio in tier 1 ratio has improved by 0.4% quarter on quarter to 19.9% and 13.2% respectively, resulting from an increase in tier 1 capital by AED 600 million in Q3 due 6/27

7 to the net profit generation for the quarter, and also with the 1% reduction in risk weighted asset as you can see from the bottom right of the slide. On page 11, looking at a very brief summary of divisional performances, we were aiming our wholesale bank key focus on continuing our strategy of realignment to ensure that our enhanced future customer service quality is improved, service quality and share of wallet, cross sale of treasury and investment banking and increase cash management trade finance penetration is achieved. Revenue improved 10% quarter on quarter but declined 17% year on year resulting from the net interest margin variability that we talked about. Loans rose by 6% from the end of last year as new underwriting more than offset the normal line of payment schedules. Deposits grew by 13% from the end of last year. Consumer wealth management is a positive story as well. It continued to improve its position during the year with revenues although declining quarter on quarter by 4%, growing 5% year on year. Deposits grew 2% quarter on quarter and 14% from the end of Loans were up 1% quarter on quarter and 4% from the end of last year driven by growth in personal loans on the SME segment. We continue to optimize our Channel strategy. We have closed 8 branches in the net reduction of 8 branches and 64 ATMs during Q Our year to date rough number of branches stands at 104 with 566 ATMs and SDMs. Page 12, looking at global market and treasury, fluid situation in the treasury, revenues declined 46% quarter on quarter and 32% year on year to AED 105 million in Q3. This has been driven by low interest income in Q3 and higher investment income in the previous quarters. 7/27

8 Tightening in spreads in the regional credit produced opportunities for the trading desk which resulted in a strong Q3 for the credit trading desk. Treasury sales have also enjoyed a good quarter as volatility returned for the foreign exchange market and saw some hedging interest from clients. The Islamic bank is a success story as well. Revenues improved 9% quarter on quarter and 45% year on year to AED 253 million in Q This is net of customers share of profit due to growth in both net funded income and fee income. Financing receivables rose 7% to AED 15.2 billion from the end of last year. Customer accounts have increased 9% to 19.9 billion from the end of last year. Emirates Islamic bank branch totals now 35 branches with an ATM and SDM network of 123. Page 13 just gives a summary of an outlook. During 2012, the UAE economy has continued to display resiliency, modest growth with oil output rising 4.3% and more than private sector expansion. We think continued strength and growth in the Dubai s traditional trade, logistics, tourism and retail, sales sectors and signs are also coming through the last few months of improving in the Dubai property market sector. For the remainder of 2012 and 2013, the external environment, as we know, remains challenging in a context of weaker expected global growth resulting from recessionary risks in the Eurozone, downgrades to US growth and an expected slowdown in Asia. But nevertheless, UAE remains well positioned to enjoy modest GDP growth of 3% in 2012 underpinned by the rise in oil production and this continued modest private sector expansion. Despite a cautious and uncertain outlook, Emirates NBD is resilient and well placed to take advantage of growth opportunities in selected areas. Capitalisation liquidity 8/27

9 continues to be extremely strong, offering us the resilience and flexibility for the future. We have significantly de-risked and strengthened the balance sheet and this now offers a strong platform for capturing future growth opportunities and we have a clear strategy in place and we re focused on the relentless execution of this strategy. Page 14 and summary, net profit growth broadly stable quarter on quarter at AED 614 million. Total income improved 1% quarter on quarter driven by increased net interest margin. Operating expenses improved 3% quarter on quarter and will be managed to a longer term cost income ratio target of 33-34% as been explained. NPL formation and provisioning trends are in line with our expectations. Capitalisation and liquidity, as I said continue to be extremely strong, offering us this resilience and flexibility. And the outlook remains challenging but Emirates NBD has a clear strategy in place to take advantage of the selected growth opportunities. That sort of concludes our presentation. I d now like to open it up as usual to your questions. Please, operator, could you go ahead? QUESTION AND ANSWER SESSION Conference Call Operator Agate Thank you, Mr. Pudner. We ll now begin the question and answer session. Please note that questions can only be asked in English. If you wish to ask a question, please press 01 on your telephone and wait for your name to be announced. If you wish to cancel your request, please press 02. Once again, press 01 if you have a question. 9/27

10 Our first question is from Naveed Ahmed from Global Investment House Investment. Please go ahead. Mr. Naveed Ahmed, Global Investment House Good afternoon, gentlemen. How are you? Mr. Rick Pudner, CEO, EMIRATES NBD Good. Mr. Naveed Ahmed, Global Investment House I ll get directly to the question, this is regarding slide 9. I just observed that over the previous quarter, the provisions related to D1 declined by 23 million. The provisions related to D2B increased by 19 million. Could you please explain that and if we could see something of what s happening in upcoming quarters. Mr. Ben Franz-Marwick, head of investor relations, EMIRATES NBD Hi, Naveed. It s Ben. I ll take that question. First in terms of D1, you ll know that is has primarily to Dubai World and if you remember, back to when we first started providing for that name, essentially, provided for the net present value of lower future coupon essentially in interest impairments only. only. And the way that, that 10/27

11 manifests itself, you take that provision upfront in terms of the accounting standards but then you unwind that provision overtime back to interest income as the loan starts reaching maturity. So each quarter, we ll see a coming down a little bit as the interest component unwinds from that provision. So that s the D1 piece. In terms of D2 or D2B, you will remember that is one of two entities with the Dubai holding stable that are being restructured or has been restructured. This is the one for which restructuring discussions are still on-going. And we tend to assess the provision at each quarter to see whether we carry the adequate level of provision given our expectation and where we eventually expect the restructuring terms to settle. If you recall the attitude at provisioning in Q1 and in Q2, we ve now added another AED 90 million to that provision in Q3 and we ll continue to reassess that as development continues on that particular restructuring. Mr. Naveed AHMED, Global Investment House And just to add on that, the coverage on this particular exposure is now around 34% so could you give us some guidance or to which level it can go? Mr. Ben Franz-Marwick, head of investor relations, EMIRATES NBD At the moment we provided you with what we think. It s required in terms of our expectation of the final terms of our restructuring. As you can understand, this particular restructuring is quite complex. It s taking quite a long time. There are a number of uncertainties around that. We assess the position of each quarter 11/27

12 depending on how these discussions develop and evolve over time. So it s difficult to answer and to say where that could go. It could go up or it could go down depending on where the eventual terms will be. Mr. Naveed AHMED, Global Investment House Ok. Thank you. Conference Call Operator Agate Ladies and gentlemen, if you would like to ask a question, please press 01 on your telephone keypads. We have a question from Shabbir Malik from EFG. Please, go ahead. Mr. Shabbir Malik, EFG Thank you very much. This is Shabbir MALIK from EFG Hermes. I have a question regarding the large exposure rules. We ve heard from National Bank of Abu Dhabi, who said they ve been granted an extension of six months in order for them to comply with these regulations. My question is: has ENBD been given something similar, or similar extension on the deadline as far as compliance with the large exposure rule is concerned? Mr. Rick Pudner, CEO, EMIRATES NBD 12/27

13 We are obviously unable to comment on the NBAD statement that was released in the press a while ago as I have no firm opinion on that one. But we re continuing to be in discussions with the Central Bank regarding a large exposure circular that was issued last year and our discussions are progressing very constructively as we speak. There is no final outcome in some of these discussions at this point but we re making very good progress in terms of looking at how we plan to deal with the guidelines going forward. Mr. Shabbir Malik, EFG Ok. And a follow-up question: I ve noticed that in your loan book, there is an increase in lending to sovereign. As far as I know, given the new right exposure rules, it s not easy to lend more to the sovereigns and GREs without breaching the new limit imposed by the Central Bank. So how does that loan growth fit in given the new regulation from the Central Bank? Mr. Rick Pudner, CEO, EMIRATES NBD I think it is part & parcel of obviously during the year business is usual in the scenario of government related,it is part and parcel as we re all aware, of the discussions that are on-going with the Central Bank at the moment. And as I said, these discussions are moving ahead in a progressive manner to address both government and government-related enterprise exposures for Emirates NBD going forward. It s 13/27

14 positive discussions, it s included in the discussions so we will obviously be getting through that successful resolution of these discussions I m sure in the near future. Mr. Surya Subramanian, CFO, EMIRATES NBD Shabbir, this is Surya. I d just like to add a small clarification to that. We have to be careful on terminology and which page of the financial statement we look at. When we give the analysis of loans and advances, what we talk about as sovereigns could be sovereigns outside of this jurisdiction as well. If we have a CASA rebond or a U.S>treasury that can still be classified as sovereign. I think your question is still valid if you look at the related partly disclosure that comes towards the end of the financial statement but I just wanted to make that distinction. Mr. Shabbir Malik, EFG All right. Thanks. Mr. Rick Pudner, CEO, EMIRATES NBD Thanks. Conference Call Operator Agate A question from Rahul from Deutschebank. Please, go ahead. 14/27

15 Mr. Rahul Shah Deutsche bank Good afternoon. Thank you for the presentation. I have three questions if I may. The first one is: if we look at your share price on the multiples that your shares are trading on, it does look as if investors are factoring in some sort of event risk into their projections. I was just wondering when we manage the business, what top down risks do you and your board worry most about. If you could perhaps give us some input on that. That would be my first question. The second question relates to non-performing loans. I was just curious if you could perhaps give some guidance on what volume of NPLs are currently fully provided for or could be written-off if you chose to get down that route. And then, the third question relates to the AFS investment gains which you recorded this quarter. If you could give some more color on what type of investments close that gain and also if you could give some guidance on what sort of indicators we should be looking at. Should it be Dubai CDs spreads or some of the other indicators? Perhaps you could share your thought. Thank you very much. Mr. Surya Subramanian, CFO, EMIRATES NBD This is Surya. Could you please clarify your third question? We couldn t get the last couple of sentences. Mr. Rahul Shah, Deutsche bank 15/27

16 The last question? Mr. Surya Subramanian, CFO, EMIRATES NBD Yes, please. Mr. Rahul Shah Deutsche bank The IFS investment gains. I was just wondering if you could give some more clarity on what types of investments drove those gains and if there were any indicators we should be looking at in other than Dubai CDS spreads or any sort of marking indicators, that might be useful to help us project gains going forward? Thank you. Mr. Surya Subramanian, CFO, EMIRATES NBD Thank you. I ll take your three questions in the order that you asked them. First, on share price. I wouldn t want to comment on our share price. That s clearly the view of the market out there. And there are multiple ways of looking at the share price. Bear in mind that we have 5% of foreign float out there and the bulk of our shareholders do not really trade if you look at the volumes. But that said, when we look at risks and the organization, we ve been quite transparent with you through the quarters and our last presentation. If you go back two years in time, our challenge was to de-risk the balance sheet and that was across multiple dimensions. There 16/27

17 was a liquidity risk issue coming off from the Lehman crisis, there was a balance sheet credit quality in terms of emerging NPLs and the level of provision we have against it. And clearly, there was a cost build up in the organization and we said we would manage those three risks. We have been consistently acting on each of these risks and there will always be as in any business some residual risks which we need to talk about in future years. That s what the management team is here for and as we take in comments from people like yourself, as what you see our risk we try and address those in our internal management conversation. Right now, I would say the liquidity risk issue is behind us. We stand comfortably in line with our own internal positioning and in terms of the Central Bank circular. In terms of credit risk and that will almost take me into the second question so I ll pause for a moment on that. And in terms of cost, we still have about another percentage point to go to get to our long term guidance of 33-34%. And that could come either by pulling up the revenues or managing down the costs or a mix of both, or getting efficient in some areas. Moving to the NPL guidance, clearly there is a bit of work left to do in de-risking the book from a credit perspective. At this call last year this time, we had indicated that as a bank, we expect NPLs to grow by 1% per annum. Last year was for 14 target, this year was 15, next year it s 16. And I ll come back to that in a minute. And we also said, as against the low profit coverage that we had in total, we wanted to get in somewhere in the region of 55 to 60 in overall coverage. And if you exclude the interest only impaired loans, we want to get closer to the 75 to 80. And that journey continues unchanged. So to that extent, that risk is still with us. It is one of our top risks that we continue to manage. In terms of the NPL guidance itself, there were two components to it that 17/27

18 made us reflect last year and shared the guidance with you. One was the continued uncertainty in the global market and Europe had then emerged as a risk, it continues to remain a risk today, and the second was the uncertainty around the collateral values in our own books. The second part of this as Rick indicated in his closing remarks on the outlook, the property market in Dubai is beginning to look better, that is giving some downside support to the collateral valuation but it s a bit too early to call whether we want to guide down the NPL guidance. So for the moment, we will still stick with 15% for the end of the year, 16% for the end of next year. As a guidance clearly, it all depends on which individual loan goes bad or which individual loans repays. Because we did mention in Q2 that we ve seen some smaller players starting to repay, especially as they want to take control of their own collateral. In terms of writing-offs, the bank at the moment does not write-off retail loans that are fully provided. Most retail loans, especially the non-mortgage related ones are fully provided after 180 days past due. But we do not write this off as yet, that s a departure from the factors in terms of what other banks in the UAE follow. On the corporate side, we write-off loans when we have exhausted all means of recovery, which includes negotiation as well as the legal process. The legal process, as you know, does take a while so we continue to pursue some loans that may be on the books or both fully provided for a long while. Moving on to your third question on AFS investments, we do as part of our liquidity management, as part of some of the past investment decisions we ve taken, we have bonds or other investments that are in the book. These are not meant for active trading and hence held in the portfolio called available for sale. There are also overtime and when I talk about overtime, you have to look back years in the 18/27

19 bank of our history. We have built up stakes and various entities with views maybe somewhere in the past that we would do something with these organizations and as time passes by, we decide that these are non-core investment. Or sometimes, when the liquidity situation changes and we want to reposition the shape of our holdings to meet the underlying profile of the book, we will sell some assets from time to time. So you would see it coming off the book as profit or loss depending on where we are with respect to the market on those AFS securities. It is not obviously a key driver of the bank s profitability. In any quarter, you would see a swing of million arriving out of these, then again a bank of our size will have assets in our portfolio that would lend themselves to that kind of volatility. I trust I have covered your three points. Mr. Rahul Shah, Deutsche bank Yes, thank you for that very comprehensive answer. I just wanted to make one observation on the first question and then ask a little bit more details on the third. On the first one, one of the risks, from my conversation with investors, I ve perceive, for example, obviously you had the Dubai bank acquisition last year and there has to be some benefits coming through this year in terms of synergies but there is, I think, still some uncertainties as whether ENBD may participate in any similar transactions in the future. And the second thing I d like to come back to an earlier question, your local sovereign loans has increased this year despite obviously the new guidelines and again, there s a concern perhaps that Emirates NBD is such a key part of the Dubai economy that it may find it difficult to refuse additional loan requests. I don t 19/27

20 know whether you can comment on that. Then, just to wind off, on the NPL, you mentioned corporate loans you have a certain volume where you have full positioning. I don t know if you can give some sense of how big those loans would be? Mr. Surya Subramanian, CFO, EMIRATES NBD I m sorry, once again on corporate loans? Mr. Rahul Shah, Deutsche bank You mentioned that there was a certain volume where you had full positioning and once you ve exhausted all available avenues, you d write those off if you couldn t get any recovery. I was just wondering if you could give us an order of magnitude at least of that volume of fully provided for corporate lending. Mr. Surya Subramanian, CFO, EMIRATES NBD I think I will start with the last, it s easier. On corporate loans, it is fair to say that where we hold a full provision are obviously enough the bulk of the impairment portfolio and corporate because the growth in the impairment loan portfolio itself is a more recent phenomenon. So, some of the fully provided loans date back to a time before the crisis. Although for loans that are not in the interest on the impaired category, we do have quite a good coverage of about 70% as has been mentioned in 20/27

21 this call. I ll answer the question on Dubai Bank and then hand over to Rick on the sovereign. As far as Dubai Bank is concerned, last year, we did say that we were taking it on a P&L going through basis. However, on an ongoing basis there will be some impact to our P&L and we have consistently managed down that impact over the quarters and there are two parts to that dynamic. The first is really the funding cost. Dubai Bank was clearly paying above the market to retain the deposits they had. We have effectively replaced those deposits with Emirates NBD cost of fund. And I m just trying to recall the numbers I quoted earlier but from memory, their asset spread was in the region of 52 basis points and our asset spread is in the region of 250 basis points. So there s a clear off peak of 200 basis points as we replacetheir higher cost liabilities with liabilities that we have access to. And on a balance sheet of 10 billion, you re talking about a benefit of about AED 200 million on a per anum basis. That cash pretty much floats through the system. Not all the 200 was realized this year because the bulk of the deposit started moving to our cost only post March 31 st of this year and all the legal and regulatory clearance were obtained for the acquisition. So, some of it will trickle into the next year as well. The second part of it is the cost base itself and Rick mentioned earlier, both in the press call and now that we brought some synergies in terms of how we bring these two organizations together, especially in the areas of support costs and technology support that we provide to the group. The third is, and that has been actively realized, is it s fair to say that the Emirate NBD and the Emirate Islamic bank franchise is more productive than what was in the Dubai Bank franchise given their challenges. And as we complete the integration of the two organizations into Q4 of this year, we should be able to realize those benefits. Especially as you look at our segmental performance, 21/27

22 our Islamic bank itself is on a roll at the moment in terms of underlying business volumes and revenues that they generate. I ll hand over to Rick for the question on sovereign. Mr. Rick Pudner, CEO, EMIRATES NBD Just going back to your comment about the increase in the level of sovereign borrowings against the guidelines. Obviously, these form part and parcel of the conversation that we are having with the Central Bank. Ongoing discussions as to how we address the requirements of that circular that they issued in April last year. So, it is part and parcel of the equation going forward to get a satisfactory solution in terms of the longer term plans of how we manage within the guidelines issued by the Central Bank. The question of whether we are commercial against pure government funding arm, I think this bank has always been run on a very much commercial armslength basis, even though the major shareholder is the government. That continues to be the case albeit in the current circumstances, we are playing our part through assisting in the restructuring of a lot of Dubai debt issues. But it s still very much down on a commercial basis, very much on arms-length pricing basis, etc. Mr. Rahul Shah, Deutsche bank Thank you very much. Mr. Rick Pudner, CEO, EMIRATES NBD 22/27

23 Thanks. Conference Call Operator Agate Ladies and gentlemen, if you wish to ask a question, please press 01 on your telephone keypad. We have a question from Anastasios Dalgiannakis Please, go ahead. Mr. Anastasios Dalgiannakis Good afternoon. This is Anastasios Dalgiannakis from Mubasher Financial ServicesQuick question: could you remind us your exact stake in UPP and at what price you have marked up at the moment? Thank you. Mr. Surya Subramanian, CFO, EMIRATES NBD We have approximately a 47% stake in union properties and we hold it approximately at a carrying value of 532 million, it s actually below the market price. I think the market price is about fils per share and we hold it at 33 fils in our books. Mr. Anastasios Dalgiannakis 23/27

24 Ok. And what is your plan? Do you plan a disposal? It is clearly non-core for you, correct? Mr. Ben Franz-Marwick, IRO, EMIRATES NBD Well it s looked at on a regular basis in terms of strategy going forward. I mean, it is not the core business of the bank but we have yet to answer any conclusions in terms of future strategy on UPP Mr. Anastasios Dalgiannakis Ok. Thank you very much. Mr. Rick Pudner, CEO, EMIRATES NBD Thank you. Conference Call Operator Agate Ladies and gentlemen, if you wish to ask a last question, please press 01 on your telephone keypad. The last question is from Karim Jetha from Blakeney ManagementPlease, go ahead. Karim Jetha, Blakeney Management 24/27

25 Hi, Rick. Thanks for making time for the call. I just had a question on terms of strategy of inorganic expansion. Are you looking more widely on the region of potential opportunities or focusing really on the UAE? Mr. Rick Pudner, CEO, EMIRATES NBD I think that it s been part of our stated strategy in the past that we are looking at inorganic opportunities. So that continues to be the case and obviously with a lot of activity in the region over the last two or three years with a certain amount of asset disposals, there s been a lot of studies going on but nothing specific at the moment. Our regional aspirations are from Turkey to India in terms of our core geographies. I think it s key looking at the UAE, particularly in terms of Dubai growth prospect in the short term that we need to expand our side, the UAE a little bit further and the intention is to try and gain some reasonably good growth in international revenues. So it s a core part of the strategy and we continue to look at opportunities. Karim Jetha, Blakeney Management Sure. If I can just ask, I don t know if you re able to comment but would you only really you look at smaller acquisitions or would you consider raising capital for specific opportunities? Mr. Rick Pudner, CEO, EMIRATES NBD 25/27

26 I think it depends on the opportunity. I mean, if there s an opportunity out there that is within our current capabilities which we find the most attractive, we wouldn t rule out a capital raising exercise if the opportunity came along and we thought it to be the right one for us. Karim Jetha, Blakeney Management Sure. Ok. Thank you very much. Mr. Rick Pudner, CEO, EMIRATES NBD Thanks. Conference Call Operator Agate This concludes today s Q&A session. Any further question can be sent to Emilie Froger from Emirates NBD. You should all have Emilie s contact details on the call invitation and the results presentation. Ladies and gentlemen, at this point, we ll now be handing the call back to Mr. Rick Pudner for his closing remarks. Mr. Rick Pudner, CEO, EMIRATES NBD Thank you, operator. Ladies and gentlemen, thank you very much. That concludes today s conference call and thank you for your participation. See you in the final quarter. Thanks. 26/27

27 Conference Call Operator Agate Ladies and gentlemen, that concludes today s conference call. Thank you for participating today. 27/27