Profitability for the Dubai-based Emirates NBD (A3/A3 stable, ba1) will be resilient to the three main challenges facing the bank -- the loss of its market leader position, the softer economy and rising interest rates, according to Moody's Investors Service.

Moody's report, entitled "Emirates NBD: Profitability Will Remain Resilient Despite Softer Economy and Competition From a New, Larger Rival," is available on www.moodys.com. The rating agency's report does not constitute a rating action, it said.

"Emirates NBD's unique position as the Dubai government's bank of choice, its large low-cost deposit base and healthy loan book will support its profitability as it negotiates the challenges of a more competitive environment, a weaker economy, and rising interest rates," said Mik Kabeya, analyst at Moody's.

The bank will continue to benefit from its role as house bank for the Dubai government, according to the rating agency. Moody's expects Emirates NBD to continue to provide financing for World Expo megaprojects backed by the Dubai government.

Competition with new rival First Abu Dhabi Bank (FAB) will also be softened by the limited overlap in corporate lending between Dubai and Abu Dhabi, where FAB is dominant.

"A large retail branch network, and early adoption of advanced digital technology also support Emirates NBD's franchise in the retail segment," says Kabeya.

Furthermore, loan book re-pricing and large low-cost deposit balances will offset pressure from rising US interest rates.

"In our view, Emirates NBD will be able to protect its profitability against rising funding costs by gradually lifting its lending rates," explains Kabeya. "In addition, the bank's large pool of low-cost current and savings deposit accounts should also keep funding costs contained, since such deposits tend to exhibit stability and limited price sensitivity."

Finally, loan recoveries from large corporate and government related issuers will moderate the impact of new delinquencies as the weaker economy hurts borrowers' repayment capacity, particularly in the retail, and small and mid-sized corporate sectors. - TradeArabia News Service