The Abu Dhabi Islamic Bank (ADIB) Group posted a 22.5% increase in net profit to AED 454.8 million for Q2 2014. The record financial performance was once again underpinned by the main banking business, with the Group’s total asset growing 15.4% to AED 105.7 billion vs. Q2 2013. The focus of ADIB’s strategy remains on delivering an award-winning customer experience across all segments in an increasing number of business lines and geographies. The customer-centric strategy places an emphasis on mutually beneficial relationships, service, innovation and convenience and is reinforced by robust enterprise risk management and best practice controls across the Group. This has seen ADIB grow its deposits by 18.2% to AED 79.0 billion and its customer financing assets by 15.4% to 64.9 billion while simultaneously managing its cost of credit and impairments on the legacy real estate exposures. As a result, total non-performing accounts as a percentage of gross customer financing decreased to 7.1% vs. 9.6% at 30 June 2013 while total credit provisions increased by 10.9% to AED 159.8 million during Q2 2014 as the Bank further increased its buffer in anticipation of the launch of the new UAE credit bureau.
The business highlights for Q2 2014 were:
• The approval by the Central Bank of the UAE of ADIB’s agreement to acquire the retail business of Barclays Bank in the UAE and the initiation of the customer, staff and business transfer process;
• The continued expansion into new customer segments, including expatriates and emerging commercial entities, while remaining loyal to the core UAE National customer base and large corporates, saw the number of active customers served by ADIB increase by 3.6% quarter-on-quarter to 618,184. This represented a 15.0% increase year-on-year.
• The Bank maintaining its position as one of the largest retail banking networks in the UAE with 80 retail branches, 606 ATMs and the leading mobile and internet banking platforms at the end of Q2 2014.
• A strong performance across all banking related businesses units saw ADIB’s net customer financing assets increase by 5.1% vs. 31 December 2013, a 15.4% increase during last 12 months.
• Customer deposits grew to AED 79.0 billion, an increase of 18.2% from AED 66.9 billion at the end of 30 June 2013, and 4.6% over the AED 75.5 billion at 31 December 2013, as the Bank maintained its best in market liquidity ratios.
• ADIB Securities increased net profit for Q2 2014 by 223.9% to AED 24.8 million vs. AED 7.7 million for Q2 2013, as it continued to build its position as the leading retail stockbroker in the UAE.
• Maintaining a conservative policy of non-performing asset recognition and remedial management, including taking an additional AED 159.8 million in total credit provisions, to ensure a healthy pre-collateral non-performing asset coverage ratio of 82.2% of the impaired portfolio, net of write-offs.
• The establishment of Adimac, the Group’s merchant-acquiring UAE joint venture, as ADIB seeks to expand its card and business banking related financial services capabilities.
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 7.1% vs. 8.3% at 31 December 2013 (9.6% at 30 June 2013). The Bank also took an additional AED 46.9 million in specific provisions and AED 112.9 million in collective provisions in Q2 2014, thereby increasing net credit provisions to AED 3,202 million, net of write-offs. Total net credit provisions now represent a pre-collateral non-performing coverage ratio of 66.5% of the total non-performing portfolio and 82.2% of the impaired portfolio. The Bank’s collective provisions which, as a minimum, are required to track the net growth in customer financing at the Central Bank’s prescribed level of 1.5%, have been further enhanced to 1.8% of total customer risk weighted assets as the Bank built a prudent buffer in anticipation of the launch of the new credit bureau in the UAE. Furthermore, the Bank’s Credit Risk Reserve of AED 400 million, which was established in Q4 2012 as part of a preemptive adoption of the emerging global best practice standards of expected loss coverage and establishment of capital buffers, remains unutilized.
Asset and Liability Management
ADIB 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% year-on-year and stood at AED 79.0 billion at the end of Q2 2014, with Central Bank placements at AED 11.5 billion and the net interbank position at AED 1.4 billion. At the same time, net customer financing assets grew by 15.4% vs. Q2 2013 to reach a new high of AED 64.9 billion (AED 61.7 billion as at 31 December 2013) and, as a result, ADIB ended the quarter with a customer financing to deposits ratio of 82.1% and advances to stable funds ratio of 79.0%, which is significantly better than the regulatory threshold of 100%. Furthermore, it is noteworthy that ADIB’s quick asset to total asset ratio was 25.8% at the end of Q2 2014.
Notwithstanding the 15.4% growth in net customer financing assets since Q2 2013 and the increase in total assets to AED 105.7 billion, ADIB’s capital ratios continue to be well above both global averages and the Central Bank of the UAE’s prescribed minimums of 12% for capital adequacy and 8% for Tier 1. Equity and Capital Resources were AED 17.5 billion at the end of Q2 2014, an increase of 2.4 % year-on-year, with the capital adequacy ratio under Basel II principles at 15.80% and the Basel II Tier 1 capital ratio at 15.34%.
ADIB has continued to invest strategically across an increasing number of customer segments in the UAE and has expanded its range of aligned financial services operations both in the UAE and in new markets. During the past 12 months, investments were made in: distribution (increasing the number of branches to 80 in the UAE); alternative channels (a 8.2% increase in ATMs to 606); growing the Arablink foreign exchange broking joint venture in the UAE (5 branches now opened); establishing a new merchant-acquiring joint venture, Adimac; and in building its regional and international capabilities in all 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 inter-related regions by offering Islamic financial solutions for everyone. Despite this focus on growth, the concurrent emphasis on efficiency saw the Group’s cost to income ratio decrease to 41.8% at the end of Q2 2014 vs. 42.0% at the end of Q2 2013.
The continuation of ADIB’s domestic and international expansion strategy, along with an increasing number of client segments and business lines and expanding range of products and solutions, has seen the Bank’s headcount in the UAE increase to 1,900. Notwithstanding this, ADIB is one of the leading banks in advocating the recruitment, development and promotion of local talent in all the markets in which it operates. As a result, the Bank now employs 886 Nationals in the UAE with a resultant Emiratisation ratio of 46.6%.
On behalf of the Board of Directors and the management team, Tirad Al Mahmoud, CEO of ADIB, said: “ADIB’s vision of being a top-performing regional bank remains firmly on track as we continue our focus on building market leadership across an increasing range of segments and business lines in the UAE and an expanding presence in the other six countries in which we operate. The continued success of ADIB’s strategy, and our ability to implement it, is clear and the Group has delivered a 22.5% year-on-year increase in net profit to AED 454.8 million for Q2 2014 on the back of a 15.4% increase in customer financing assets and 18.2% growth in customer deposits over the past year.
“As was the case in the first quarter of the year, it is noteworthy that the record quarterly performance reflects the sustainable strength of our core banking businesses in that it did not rely on reducing provisioning and impairment levels as we continued our conservative approach in managing our legacy remedial portfolio. In this regard we added a further AED 175.8 million in total credit provisions and impairments during Q2 2014 taking the total credit provisions and impairments taken by the Group, including write-offs, since 2008 to AED 5,453.8 million. It should also be noted that we have further increased our collective provisions by AED 112.9 million in Q2 2014 and have brought our ratio to total customer risk weighted assets to 1.8%, which is well above the Central Bank minimum guidelines of 1.5%, by building a prudent buffer in anticipation of the launch of the new credit bureau in the UAE.
“We are pleased to have received the full support of and approval by the Central Bank of the UAE for the agreement to acquire the retail banking business of Barclays Bank in the UAE. ADIB and Barclays are now working together to ensure a seamless transition for customers and all the staff who have accepted our offer of ongoing employment, which we anticipate completing well before year-end. After completion, the customers will have full access to all ADIB’s products, networks and services in addition to enhanced versions of their existing products and branch access. It is anticipated that the transaction will result in over 115,000 new customers joining ADIB, taking our total active affluent base to almost 750,000 by the end of 2014, as we expand into the expatriate market segment without disrupting our existing UAE National customer base.
Other ADIB Group companies
“Despite the recent volatility and ongoing correction in the UAE equity markets, our stock-brokerage subsidiary, ADIB Securities, registered a net profit of AED 24.8 million in Q2 2014, up 223.9% from the previous year. With over 45% of volumes now flowing through our online portals, we are committed to further enhancing the trading platform and related internet and mobile customer order and market information channels as we seek to expand our market presence.”
With regard to Burooj Properties, the Group’s real estate subsidiary: “Our systematic approach to repositioning Burooj is ongoing. Q2 2014 saw no further impairments on the portfolio and we believe that barring any further shocks to the real estate market or the failure of those partners, who we are engaging in ongoing discussions to reach agreement to further reduce the business’ legacy commitments, we can now focus our attention on enhancing its future prospects. In this regard, the next step is to complete the sale of Burooj’s last trading assets and, subject to regulatory approval, consolidate the Group’s real estate investment property portfolio into a future 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 now further expanding its business by offering a mix of property management, valuations, sales and leasing agency and related services. We 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 second half of 2014: “While we continue to identify and invest in new markets and establish new business lines, our core business remains our UAE banking operations. We are positive about the UAE’s economic outlook and will continue to invest in growing our market share in an increasing number of segments. In this regard, we look forward to completing the seamless integration of the Barclays UAE retail customers and staff into their new home as well as the continued performance of our existing segments, including our core UAE National and corporate customer bases.
“Notwithstanding our positive outlook we are closely monitoring the levels of consumer debt and the pending launch of the new UAE credit bureau, which will bring much welcomed clarity to the risk recognition of individual customers. Furthermore, while we have made significant progress in dealing with our legacy credit and real estate portfolios, we do not believe the impact of the recent financial crises on the UAE credit cycle has concluded and many non-performing customers are still under remedial action. Until these remedial discussions are concluded in a manner we consider sustainable we will continue our problem credit recognition, provisioning and related recovery management processes.”
The Board of Directors, executive management and members of ADIB staff wish to extend their sincere appreciation and gratitude to His Highness Sheikh Khalifa Bin Zayed Al Nahyan, the President of the UAE and Ruler of Abu Dhabi, to His Highness Sheikh Mohammed Bin Zayed Al Nahyan, Abu Dhabi Crown Prince and Deputy Supreme Commander of the UAE Armed Forces, to the Central Bank of the UAE and to the Emirates Securities and Commodities Authority, our shareholders and our clients for their continued trust in and support of ADIB.
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