ENBD reported a net profit of AED1,808 million for 1Q2016, +8.2% Y-o-Y and -15.3% Q-o-Q. Earnings were in line with our AED1,872 million estimate, but missed consensus estimate of AED1,918 million.   Main positives: i) Strong loan growth (+3.1% Q-o-Q, +12.1% Y-o-Y); ii) CASA deposit mix improves (59% in 1Q16 from 56% in 4Q15); iii) Credit quality metrics improve (NPL ratio eases to 6.9% from 7.1% in 4Q15; NPL coverage rose to 114% from 112% in 4Q15)   Main negatives: i) Pressure on spreads (-22bps Q-o-Q to 2.50%); ii) Higher-than-expected provisioning (cost of risk at 105bps versus our estimate of 99bps)   Our view of the results: Earnings came in line with our estimate as stronger-than-expected investment income compensated for pressure on spreads and higher provisioning. Spreads contracted sharply to 2.50% from 2.72% in 4Q2015, owing to higher cost of funds, likely on increased cost of term deposits. That said, liquidity tightened marginally – LDR rose to 96% from 94% in 4Q2015 – and the mix of CASA deposits improved to 59% from 56% in 4Q2015. While NPL formation was subdued Q-o-Q, ENBD raised its NPL coverage as the UAE’s credit cycle turns. Its cost of risk rose to 105bps from 73bps in 4Q15, which helped raise NPL coverage to 114% from 112% in 4Q2015. ENBD trades at 2016e P/E of 6.8x and P/BV of 1.2x. The bank’s provisioning should ease off in 2016, helped by write-backs, and it is the best-positioned among UAE banks to benefit from higher US rates and lifting of sanctions of Iran. We have a Buy rating on the stock. (Earnings release, Shabbir Malik, Murad Ansari)   Emirates NBD: AED8.20 as of 18 April 2016, Rating: Buy, FV: AED10.00 per share, MCap: USD12,418 million, EMIRATES UH / ENBD.DU