Abu Dhabi Islamic Bank (ADIB) posted a record net profit of AED 293.3 million for the first quarter of 2010, an increase of 9.3% over the same period in 2009. During the first quarter for 2010 ADIB continued on its growth path as it: increased total customer numbers to 365,080; opened its 55th branch in the UAE; increased total assets to AED 66 billion; and maintained its strong liquidity (financing to deposits ratio at 84.0%). The Bank also continued its conservative approach to provisioning including maintaining its prudent policy of taking a 1.25% collective provision.
A focus on the Bank’s vision and mission sees profitability restored
In line with ADIB’s vision to become a top tier Islamic financial services group and its mission to provide Islamic financial solutions for the global community, the new management team has continued to enhance the Bank’s customer focus while simultaneously apply prudent banking risk practices. In 2009 this approach saw ADIB take a conservative approach in regard to the recognition of non-performing credit exposures and investments and this practice continues to be evidenced in the build-up of total provisions. As a result the Bank has taken an additional AED 82.5 million in individual provisions and AED 22.7 million in collective provisions thereby increasing total provisions to AED 1.83 billion which amounts to 4.18% of gross customer financing. Notwithstanding this profitability has been restored with record quarterly net profit of AED 293.3 million.
Liquidity
ADIB grew its customer deposits by 28.4% to AED 49.9 billion (AED 38.9 billion in Q1 2009 – adjusted to exclude the AED 2.2 billion of deposits converted into Tier 2 Capital on 31 December 2009) and net customer financing by 17.3% to AED 42.0 billion (AED 35.8 billion as at 31 March 2009). The maintaining of the Bank’s overall liquidity reflects the focus on customer service across all segments, while the growth in customer financing comes on the back of a robust credit process that ensured the booking of quality assets.
Capital strength
The Bank’s capital position remains strong. Total capital resources, including both the Tier 1 and Tier 2 capital, as at 31 March 2010 improved to AED 12.6 billion vs. AED 8.4 billion at 31 March 2009. The capital adequacy ratio remained strong at 16.84% under Basel II principles (10.77% as at 31 March 2009) with the Basel II Tier 1 capital ratio stable at 13.43% (12.59% at 31 March 2009).
Cost management
Investment in 10 new branches in the past 12 months, related infrastructure and human capital saw operating expenses increase by 29.7% to AED 282.1 million with the cost to income ratio increasing to 41.5%. Management expects the cost to income ratio to resume its downward trend once the core growth investment cycle is completed.
Human resources
The bank's headcount increased by 81 in the quarter and now stands at 1,957. Furthermore ADIB is particularly proud of the fact that by the end of Q1 2010 its Emiratisation ratio was over 40%, an achievement that was recognised by the bank being awarded the prestigious Human Resource Development Award in the first category by the Emirates Institute of Banking and Financial Studies in March.
Management comment
On behalf of the Board of Directors and the management team, Tirad Mahmoud, ADIB’s CEO, said: “Our new management team in now in its third year with the Bank and our prudent risk decisions and commitment to growth during the uncertain economic times have been rewarded with record quarter as operating profit increased by 10.3% to AED 398.5 million and net profit reached a new high of AED 293.3 million. An ever increasing focus on customer service and delivery channels, including more ATMs and e-solutions, along with our outstanding capital and liquidity position means that we will now be able to sustain our growth into the future. We took decisive action in 2009 and have continued to do so in the first quarter of 2010. We are particularly proud of the fact that our collective provisions now stand at over AED 540 million as we apply our pre-emptive 1.25% policy.
Since the new management team took over in early 2008, total credit provisions and impairments have increased to AED 2,275 million from AED 403.4 million at the end of 2007, as the portfolio of old investments and credits from the past five years have been prudently reviewed. The efforts of the two remedial management units we established in 2009 are starting to be felt and we will continue to work with those customers who are in genuine difficulty to assist them in restructuring their financing in a manner which will be of mutual benefit.
We were also pleased that our Wholesale Banking franchise has joined the Retail Banking units in delivering quality asset growth backed by a focus on high rated customers. Deals in the first quarter reflect ADIB's commitment to supporting our clients and the UAE economy as a whole. This commitment was evidenced in the provision of an AED 300 million facility to the Al Dhafra Cooperative Society, the provision of an additional AED 100 million in financing to a major UAE University and an AED 300 million in incremental finance in regard to a significant environmental project. We are also playing our role in a number of infrastructure projects and believe that we will increase our activities in this regard in the rest of the year"
Other ADIB Group companies
Commenting on the performance of other Group companies besides the core Bank business, Tirad said: “We are pleased to report that ADIB’s stock-brokerage subsidiary, Abu Dhabi Islamic Financial Services, posted a profit of AED 1.4 million for Q1 2010. This represents a significant turnaround after ADIFS posted a loss of AED 9.1 million in Q1 2009. ADIFS now has a new senior management team in place and continues to position itself as an agency business committed to building a strong customer orientated franchise under our Wealth Management offering. ADIFS maintained its leadership amongst Shari’a complaint brokers and is now the 7th largest share brokerage house overall, by market share, in the UAE. Our new trading and settlement platform is now operational and our new customer e-trading platform will go live in the second quarter thereby completing the systems overhaul that we embarked upon in mid 2009.
Turning to Burooj, the Group’s real estate subsidiary, it had a profitable first quarter posting a small net profit of AED 2.1 million. While this stands in contrast with the profit of AED 11.8 million Burooj posted in Q1 2009, we are pleased that it has enjoyed its second successive profitable quarter. However, we expect the rest of the year to remain challenging for Burooj.”
Outlook for the rest of 2010
Providing guidance on the Bank’s direction for 2010, Tirad said: “ADIB has entered its 12th year of operations on a growth trajectory. While the brunt of the legacy portfolio’s cost of credit was absorbed in 2009 we expect to take further prudent measures in 2010 and, depending on how the credit and investment environment evolves, this will include further credit provisions and impairments. Notwithstanding this, we are confident that the bank is on the right track as witnessed by our headline numbers and believe that Group profitability is being restored.
Moreover, the strength of the Bank is now well established and we are building a diversified business that will deliver Shari’a inspired solutions to our customers. Specifically:
• We will continue to grow our Retail Banking presence across the UAE, where our target is 70 branches by year end, thereby giving us the necessary network scope to drive our growth. This will be supported by a new e-banking platform in the second quarter along with an every growing array of convenience channels as more ATMs, enhanced mobile banking and improved call centre services are unveiled
• Our Wealth Management proposition, which was in its pilot phase in the first quarter, will be formally launched to customers in the second quarter as we seek to offer our clients trusted advice and access to top products through certified professional investment advisors.
• Our Private Banking strategy has been significantly revised and we look forward to launching our new value proposition to our high net worth customers later in the year.
• The Wholesale Banking franchise continues to gain momentum as our Corporate Finance and Transaction Banking propositions are built in support of our corporate, commercial and public sector clients.
• All of this will be backed by the continued investment in talented individuals and systems to support them.”
Gratitude
The Board of Directors, executive management and all members of 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.
Condolences
The Board of Directors, executive management and all members of staff wish to extend their condolences to the UAE with regard to the sad and untimely demise of Sheikh Ahmed Bin Zayed Al Nahyan, may his soul rest in peace.
