Abu Dhabi Islamic Bank (ADIB) Group posted a 20.5 per cent increase in net profit to AED 476.8 million for Q3 2014. The financial performance, which included the cost of acquiring Barclay’s UAE retail banking business, was underpinned by the main banking business in the UAE, with the Group’s net customer financing assets growing 21.7 per cent in Q3 2014 vs. Q3 2013 to AED 71.6 billion.
ADIB increased its deposits by 18.2 per cent to AED 82.9 billion and its total assets by 12.2 per cent to AED 109.0 billion while simultaneously managing its cost of credit and impairments. As a result, total non-performing accounts as a percentage of gross customer financing decreased to 6.2 per cent vs. 8.9 per cent at 30 September 2013 while total credit provisions and impairments decreased by 3.5 per cent to AED 186.8 million during Q3 2014.
Business highlights for Q3 2014 were:
- The completion of ADIB’s acquisition of the retail business of Barclays Bank in the UAE and the initiation of seamless customer, staff and business transfer process;
- The continued expansion into new customer segments, including further penetration of the expatriate segment through the Barclays retail acquisition while remaining loyal to the core UAE National customer base and community, corporate and commercial clients, saw the number of active customers served by ADIB increase by 21.7 per cent quarter-on-quarter to 752,168 (including transfer of 110,672 from Barclays). This represented a 34.6 per cent increase year-on-year.
- The bank further enhanced its position as one of the top three Retail Banking networks in the UAE with 85 branches (including transfer of two from Barclays), 656 ATMs (including transfer of 29 from Barclays) and the leading mobile and internet banking platforms at the end of Q3 2014.
- A strong performance across all banking related businesses units, particularly Wholesale Banking in Q3 2014, saw ADIB’s net customer financing assets increase by 16.0 per cent vs. 31 December 2013, a 21.7 per cent increase during last 12 months.
- Customer deposits grew to AED 82.9 billion, an increase of 18.2 per cent from AED 70.2 billion at the end of 30 September 2013, and 9.8 per cent over the AED 75.5 billion at 31 December 2013, as the Bank maintained its best in market liquidity ratios.
- Priority and Private Banking increased Assets under Management by 253 per cent to AED 4.2 billion vs. AED 1.2 billion at the end of Q3 2013.
- Fee income for the first nine months of 2014 increased by 19.1 per cent vs. the same period in 2013 as the Corporate Finance and Investment Banking, Transaction Services and Treasury units along with Retail and Private Banking expanded their range of services to clients.
- ADIB Securities increased net profit for Q3 2014 by 91.4 per cent to AED 17.6 million vs. AED 9.2 million for Q3 2013, as it continued to build its position as the leading retail stockbroker in the UAE.
- Maintaining the conservative policy of non-performing asset recognition and remedial management, including taking an additional AED 186.8 million in total credit provisions, to ensure a healthy pre-collateral non-performing asset coverage ratio of 91.9 per cent of the impaired portfolio, net of write-offs.
ADIB continued its well-established, best-practice approach to managing its non-performing portfolio. As a result, total non-performing accounts, as a percentage of gross customer financing assets decreased to 6.2 per cent vs. 8.3 per cent at 31 December 2013 (8.9 per cent at 30 September 2013).
The Bank’s collective provisions have been increased by an additional AED 62.8 million to 1.73 per cent of total customer risk weighted assets as the Bank incorporated the Barclay’s UAE retail assets for the first time while simultaneously increasing its buffer over the 1.5 per cent Central Bank prescribed ratio as a prudent measure linked to the launch of the new credit bureau in the UAE. Furthermore, the Bank took AED 123.6 million in additional specific credit provisions which, when combined with the decline in total non-performing accounts, means that the combined collective and specific provisions now represent a pre-collateral non-performing coverage ratio of 91.9 per cent of which specific credit provisions represent 58.6 per cent.
Asset and Liability Management
ADIB, as an early adopter of Basel III liquidity measures, maintained its position as one of the most liquid banks in the UAE while simultaneously continuing to manage its cost of funding. Customer deposits increased by 18.2 per cent year-on-year and stood at AED 82.9 billion at the end of Q3 2014, with Central Bank placements at AED 7.8 billion and the net interbank position at AED 1.0 billion. At the same time, net customer financing assets grew by 21.7 per cent vs. Q3 2013 to reach a new high of AED 71.6 billion (an increase of 10.4 per cent over AED 64.9 billion as at 30 June 2014) and, as a result, ADIB ended the quarter with a customer financing to deposits ratio of 86.4 per cent and advances to stable funds ratio of 86.6 per cent, which is significantly better than the regulatory threshold of 100 per cent.
Given the 21.7 per cent growth in net customer financing assets since Q3 2013 and the increase in total assets to AED 109.0 billion, along with both the acquisition of the Barclay’s UAE retail business (a once off capital impact of approximately 0.8 per cent) and the introduction of regulatory changes to the treatment of risk-weighted assets by the Central Bank of the UAE, ADIB’s capital adequacy ratio under Basel II principles declined to 14.34 per cent and the Basel II Tier 1 capital ratio to 13.85 per cent. However, notwithstanding the above market business growth and regulatory changes, ADIB’s capital ratios continue to be well above both global averages and the Central Bank of the UAE’s prescribed minimums of 12 per cent for capital adequacy and 8 per cent for Tier 1. Furthermore, Equity and Capital Resources were AED 18.0 billion at the end of Q3 2014, an increase of 2.8 per cent year-on-year.
ADIB has continued its efficient and effective cost management practices while simultaneously investing strategically across an increasing number of customer segments in the UAE and expanding its operations in new markets. Aside from the costs associated with the Barclay’s retail acquisition, which was completed in Q3 2014, the primary areas of focus in the past 12 months included: distribution (increasing the number of branches by eight to 85 in the UAE); alternative channels (a 13.3 per cent increase in ATMs to 656); rolling-out the Arablink foreign exchange broking joint venture in the UAE (five branches now opened); launching a new merchant-acquiring joint venture, ADIMAC; and in building its regional and international capabilities as appropriate in the seven countries in which ADIB is present. Behind this investment is a clear strategy to ensure that ADIB continues to consolidate its position as one of the top banks in the UAE while working towards the Group’s vision of becoming a top-performing bank across four unique regions by offering Islamic financial solutions for everyone. Despite the continued emphasis on growth, the concurrent focus on efficiency saw the Group’s cost to income ratio for the first nine months of 2014 remain flat at 42.3 per cent vs. same period in 2013.
ADIB’s continued expansion strategy, including servicing an increasing number of client segments through a broader range of products and solutions, has seen the Bank’s headcount in the UAE increase to 2,059 and the Bank employs 872 Nationals in the UAE.
Tirad Al Mahmoud, CEO of ADIB, said, “This quarter saw ADIB welcome our 750,000th client as we completed the acquisition of Barclay’s UAE retail banking business and turned our focus to the seamless transfer of the clients onto the award winning ADIB platforms. Furthermore, all customer facing units: Retail Banking; Private Banking; Community Banking; and Wholesale Banking, continued to grow market share and as a consequence we have seen ADIB’s customer financing assets increase 21.7 per cent year-on-year to AED 71.6 billion backed by an 18.2 per cent increase in customer deposits to AED 82.9 billion over the same period. As a result of the continued success of ADIB’s strategy, and our ability to implement it while keeping margins at a competitive level, the Group has delivered a 20.5 per cent year-on-year increase in net profit to AED 476.8 million for Q3 2014.
“Furthermore, it is pleasing to note that, notwithstanding the continued improvement in resolving our legacy non-performing asset portfolio, where total non-performing assets as a percentage of gross customer financing decreased to 6.2 per cent, that the record quarterly performance did not rely on reducing provisioning and impairment levels. In fact the sustained strength of our core banking businesses enabled ADIB to add a further AED 186.8 million in total credit provisions during Q3 2014 and now represent a pre-collateral non-performing coverage ratio of 91.9 per cent of the impaired portfolio. Total credit provisions and impairments taken by the Group, including write-offs, since 2008 now stand at AED 5.64 billion and we are determined to continue our remedial efforts backed by a conservative approach to both problem account recognition and appropriate levels of provisioning until our non-performing asset ratio is best in market.
“We are also well aware that the quarter-on-quarter growth in net customer financing assets by 10.4 per cent, and the follow-through increase in total assets to AED 109.0 billion at the end of Q3 2014, has resulted in ADIB’s capital adequacy ratio declining to 14.34 per cent. ADIB has always been at the forefront of banks in the UAE when it comes to capital management, having issued the first hybrid Tier 1 instrument in the region, and notwithstanding the fact that the Central Bank has not yet issued its capital guidelines in regard to Basel III we fully expect to be able to support our continued growth in the most effective and efficient manner while maintaining all our capital ratios well above the levels expected by regulators, rating agencies and investors.
“Despite the recent volatility in the UAE equity markets, our stock-brokerage subsidiary, ADIB Securities, registered a net profit of AED 17.6 million in Q3 2014, up 91.4 per cent from the previous year. We further enhanced our digital portals, which now account for almost 50 per cent of our volumes, by launching our new mobile customer order and market information channel and will continue to invest in the business as an important component of our Priority and Private Banking proposition”
“With regard to Burooj Properties, the Group’s real estate subsidiary: “Our systematic approach to repositioning Burooj is ongoing, as are the negotiations with some of our partners in regard to restructuring its legacy commitments. Q3 2014 saw no further impairments on the land portfolio and we are now focused on enhancing Burooj’s future prospects. In this regard, the goal is to complete the sale of Burooj’s last trading assets by year-end and, subject to regulatory approval, consolidate the Group’s real estate investment property portfolio into a fund-based structure.”
In respect to the Group’s property management subsidiary, MPM: “Our twin focus remains on bringing MPM’s customer service levels up to the same standards at the Bank while simultaneously building MPM’s new business model as an integrated real estate services company. Today, MPM manages over 22,000 units in the UAE and is successfully expanding its business by offering a mix of property management, valuations, sales and leasing agency and related services nationwide. We continue to expect MPM to complete its repositioning by year-end and make a positive contribution in 2015.”
Outlook for 2014
Providing further guidance on the Bank’s outlook for the remainder of 2014: “Our core business remains our UAE banking activities, where we continue to build a diversified financial services proposition and deploy the majority of ADIB’s capital. Notwithstanding the return of volatility in global financial markets and the ongoing economic concerns in multiple markets, and the resultant impact on energy and related prices, we remain positive about the UAE’s economic outlook and will continue to invest in growing our market share in an increasing number of segments by delivering an award winning customer experience in the most convenient manner, be it through our people or our digital channels. In this regard, we look forward to completing the seamless integration of the Barclays UAE retail customers into their new home as well as the continued performance of our existing segments, including our core UAE National customer base.
“Notwithstanding our positive outlook for the rest of the year, we will continue with our remedial efforts in regard to our legacy credit portfolio. As previously stated, we do not believe that the impact of the recent financial crises on the UAE credit cycle has concluded and until the remedial portfolio is dealt with in a manner that we consider sustainable, we will continue our problem credit recognition, provisioning and related recovery management processes. In this regard we are also focused on the impact of the launch of the new UAE credit bureau given that we believe that it will bring much welcomed clarity to the risk recognition of individual customers.”
Originally published on www.cpifinancial.com