Emirates NBD took a conservative stand on its provisioning policy in the third quarter of 2011 as it expects a moderate increase in its non-performing loans (NPLs) ratio in the next two years, bank officials said during a conference call yesterday. The bank reported an impairment charge of Dh1.57 billion in the third quarter of 2011 driven by a specific provision of Dh950 million made in relation to the Dh4.7 billion exposure to a Dubai-based government related entity (GRE). The bank warned provisions for bad loans could hit results in the fourth quarter after profit slumped in the third quarter, dragged down by impaired loans. \"For the fourth quarter, the outlook could be a repeat of the third quarter,\" said Surya Subramanian, chief financial officer at Emirates NBD. Officials yesterday said the bank had adopted a conservative policy on provisions. \"As part of the management\'s more conservative stance on impairments and provisions, we have decided to have coverage ratios in the range of 80 to 85 per cent on [the] underlying NPL portfolio,\" said Ben Franz-Marwick, head of Investor Relations at Emirates NBD, during a conference call. Analysts said the increase in total impairments in the third quarter could mean impairments other than the exposure to Dubai Holding. \"Provisions amounting to Dh950 million were related to ENBD\'s exposure to a Dubai GRE [very likely Dubai Holding]. While Dubai Holding accounts only for Dh4.8 billion in impaired loans the remainder is unclear,\" said Naveed Ahmad, senior financial analyst at Global Investment House.The bank hopes to achieve 55 to 60 per cent coverage on overall impaired loans by 2013 through conservative provisioning and the continued build-up of portfolio impairment allowances. Potential risks \"Although our assessment of overall credit risk remains unchanged, we are cautious on the potential risks. \"While the outlook has become more cautious and uncertain, our strong levels of capitalisation and liquidity offer both resilience and flexibility for the future and an ability to take advantage of selected growth opportunities,\" said Rick Pudner, chief executive of Emirates NBD. The bank\'s NPL ratio is expected to be in the range of 13-14 per cent in 2011 but with some increase expected in the next two years. \"The 2013 NPL ratios could reach 15 to 16 per cent due to more conservative recognition of impaired loans and lower than previously anticipated loan growth,\" Subramanian said. Emirates NBD\'s customer loans in the first nine months of 2011 — including Islamic financing — amounted to Dh196.4 billion and were maintained at similar levels to the end of 2010. The bank expects a modest loan growth of 1-2 per cent this year. Customer deposits as of September 30 were Dh183.6 billion, a decline of 8 per cent relative to the customer deposit base as of December 31, 2010. \"The decline in deposits was due to a balance sheet management initiative where we allowed to let go some of the high cost wholesale deposits,\" said Subrabanian. The loan to deposit ratio is expected to be managed to the target range of 95 per cent to 100 per cent.