ADIB’s CEO, Tirad Mahmoud
Abu Dhabi Islamic Bank (ADIB) posted a net profit of AED 303.2 million for Q1 2011, an increase of 3.4% over the same period in 2010. Performance from the main banking business was particularly strong as the Bank’s net revenues grew by 23.5% to AED 813.8 million from AED 659.1 million in Q1 2010.
The Bank has maintained its strong liquidity position and continues to respect the regulatory ratios, as the advances to stable funds ratio improved to 86.8% at quarter end, while placing new emphasis on carefully managing the cost of funds by not building deposits at higher costs. In addition, strong year-on-year customer activity in both the Retail and Wholesale Banking units saw ADIB’s customer numbers increase by 17.2% since Q1 2010 to more than 427,000 customers. Furthermore, the Bank continued its conservative approach to provisioning, in line with the prudent policy of taking collective and individual provisions it introduced in 2009, and thus ensuring a healthy non-performing asset coverage ratio.
A focus on the Bank’s strategy continues to drive growth
The first quarter of 2011 saw ADIB’s management continue to take a conservative approach to the recognition of non-performing credit exposures and investments. As a result, the Bank has taken an additional AED 151.0 million in credit provisions and impairments in Q1 2011, thereby increasing total credit provisions to AED 2.43 billion, which now amounts to 4.81% of gross customer financing and represents a pre-collateral non-performing coverage ratio of 64.5%. In addition a further AED 8.6 million in impairments was taken against the Real Estate subsidiary’s portfolio. The Real Estate subsidiary posted an AED 37.8 million loss for the Q1 2011, but notwithstanding this, net profit for the Group reached AED 303.2 million. This highlights the underlying strength of the core banking operations, where the Bank posted a 17.0% growth in net profit for the quarter to AED 339.3 million.
ADIB maintained its position as one of the most liquid banks in the UAE with customer deposits of AED 51.9 billion (AED 49.9 billion at 31 March 2010) and a net interbank position of AED 10.1 billion. Net customer financing grew to AED 48.1 billion (AED 42.0 billion as at 31 March 2010) and the Bank ended the quarter with a customer financing to deposits ratio of 92.7% and advances to stable funds ratio of 86.8%, which is significantly better that the regulatory threshold of 100%. The quarter saw an increased focus on lowering the cost of funds on the back of ADIB’s successful benchmark USD 750 million 3.745% profit rate sukuk issue in Q4 2010 and in support of the UAE Central Bank’s goal of lowering the interbank rate in the UAE. In this regard the current and savings accounts grew by 5.2% for the quarter to AED 22.7 billion.
The Bank’s capital position remains strong. Total capital resources, including both Tier 1 and Tier 2 capital, as at 31 March 2011 improved to AED 15.7 billion vs. AED 12.6 billion at 31 March 2010 (AED 15.8 billion at 31 December 2010). The Capital Adequacy ratio remained strong at 15.3% under Basel II principles (16.0% at 31 December 2010), with the Basel II Tier 1 capital ratio stable at 12.4% (13.0% at 31 December 2010).
A focus on cost management saw operating expenses decline by 9.5% to AED 344.7 million for Q1 2011 vs. AED 381.0 million for Q4 2010. However, the investment in 11 new branches in the past 12 months, related infrastructure and human capital saw the Group’s operating expenses increase by 22.2% year-on-year, with the Group cost to income ratio increasing to 42.7%. More importantly, the Bank’s cost to income ratio was 39.8% for Q1 2011 vs. 42.7% in Q4 2010. ADIB expects the Bank’s cost to income ratio to stabilize in 2011 as the continued investment in growth is matched by further revenue increases.
The Bank's headcount now stands at 1,667. Furthermore, ADIB is particularly proud of the fact that by the end of Q1 2011 the Bank’s Emiratisation ratio had moved above 44%. The focus on training and enhancing the professional qualifications of staff to better serve customers is proving itself as customer satisfaction levels continue to rise, as recognized by ADIB’s award as the most improved bank for customer service in the UAE in 2010 and its top three rating in the banking sector.
On behalf of the Board of Directors and the management team, ADIB’s CEO, Tirad Mahmoud, said: “The first quarter of 2011 has seen us maintain our strategic momentum, enabling us to post a Group net profit of AED 303.2 million for Q1 2011. More importantly, our banking operations delivered a record quarterly net profit of AED 339.3 million. The foundations of our growth remain customer service excellence, best practice risk management and qualified staff led by an experienced management team. This, when combined with our outstanding capital and liquidity position, means that our growth is sustainable and ADIB’s strategy to become a top tier UAE bank and global Islamic bank remains on track despite the continued global economic challenges and events closer to home.
“The Bank has maintained its strong liquidity position and continues to respect the regulatory ratios, as the advances to stable funds ratio improved to 86.8% at quarter end, while also placing new emphasis on carefully managing the cost of funds by not building deposits at higher costs. We are fully supportive of the efforts of the regulatory authorities to reduce the costs of banking in the UAE while simultaneously encouraging the responsible use of credit by consumers. As a major bank in this country we have decided to take a leading role in this regard, including the launch of our Smart Money initiative. Smart Money is a step-by-step guide to a balanced financial life and look forward to providing the community at large with ways in which they can increase their savings and spend wisely.
“In regard to provisioning, ADIB is now acknowledged as being in line with best practice when it comes to our recognition of non-performing accounts and providing against these, having preempted the UAE Central Bank guidelines. We have therefore continued to be prudent and take appropriate individual provisions on the impaired portfolio in line with our 90 days past due and conservative collateral recognition approach, adding a further AED 126.2 million in Q1 2011 versus AED 58.7 million in the corresponding quarter last year. Since the new management team took over early in 2008, total credit provisions and impairments have increased to AED 3,007 million from AED 404 million at the end of 2007. The two remedial management units we established in 2009 are now very active as we continue to work with those customers who are in genuine difficulty, and actively engage with us, to assist them in the sustainable restructuring of their financing.
“Turning to our collective provisioning, our policy has been refined to recognize both the UAE Central Bank guidelines and best practice accounting standards and our provisions in this regard increased by AED 27.5 million in Q1 2011, to stand at AED 602.9 million.
Outlook for 2011
“Providing guidance on the Bank’s direction for rest of 2011, Tirad said: “While we expect 2011 to be another year of muted global economic activity, we are closely monitoring what is happening in the broader region and its follow-on impact on some of our customers and operations. We are also aware of the increasingly competitive environment in which we operate in the UAE and the increased regulatory oversight that is being brought to bear on the market as a whole, all of which makes the year ahead a challenging one and we therefore expect single digit growth in both assets and liabilities. Furthermore, while the brunt of the legacy portfolio’s cost of credit was absorbed in 2009, and we took further action in 2010, we expect to continue to take prudent measures as necessary for both the Bank and Burooj portfolios during the course of the year. However, despite these realities, ADIB remains on a clear growth trajectory and we will continue to focus on building our banking and financial services businesses both in the UAE and abroad as opportunities present themselves.”
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 Mohamed Bin Zayed Al Nahyan, Abu Dhabi Crown Prince and Deputy Supreme Commander of the UAE Armed Forces, to the UAE Central Bank and to the Emirates Securities and Commodities Authority, our shareholders and our clients for their continued trust in and support of ADIB.