Abu Dhabi Islamic Bank quarterly net profit increases by 55.9%

Published July 18th, 2010 - 12:43 GMT

Abu Dhabi Islamic Bank (ADIB) posted a record net profit of AED 301.6 million for the second quarter of 2010, an increase of 55.9% over the same period in 2009. This is the second consecutive record quarter for ADIB as it continued on its growth path by: launching its new brand positioning, "Banking as it should be", and corporate identity; launching its new e-banking and mobile platform; increasing total customer numbers to 387,017; opening its 57th branch in the UAE; increasing total assets to AED 68.3 billion; and maintaining its strong liquidity (financing to deposits ratio at 87.1%). The Bank also continued its conservative approach to provisioning including maintaining its prudent policy of taking a minimum 1.25% collective provision.

A focus on the Bank's vision and mission sees profitability restored

The quarter under review saw ADIB's management continuing taking a conservative approach in regard to the recognition of non-performing credit exposures and investments and this practice is 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 52.1 million in collective provisions thereby increasing total provisions to AED 1.93 billion which amounts to 4.10% of gross customer financing. Notwithstanding this the profitability that was restored in the first quarter of 2010 has been followed by a second consecutive record quarterly net profit of AED 301.6 million. 

Liquidity

ADIB grew its customer deposits by 25.4% to AED 51.9 billion (AED 41.4 billion in Q2 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 20.7% to AED 45.2 billion (AED 37.4 billion as at 30 June 2009). Sustaining 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 that customer assets grew by AED 3.3 billion during the quarter. 

Capital strength

The Bank's capital position remains strong. Total capital resources, including both the Tier 1 and Tier 2 capital, as at 30 June 2010 improved to AED 12.8 billion vs. AED 10.6 billion at 30 June 2009. The capital adequacy ratio remained strong at 16.64% under Basel II principles (14.19% as at 30 June 2009) with the Basel II Tier 1 capital ratio stable at 13.42% (15.84% at 30 June 2009). 

Cost management

Investment in 9 new branches in the past 12 months, related infrastructure and human capital saw operating expenses increase by 31.3% to AED 307.9 million year-on-year with the cost to income ratio increasing to 41.4%. The Bank's cost to income ratio was 37.7% for the quarter down from 40.0% in the first quarter of 2010. Management expects the Group's cost to income ratio to resume its downward trend once the core growth investment cycle is completed and the non-banking businesses return to profitability.

Human resources

The bank's headcount increased by 44 in the quarter and now stands at 1,557. Furthermore ADIB is particularly proud of the fact that by the end of Q2 2010 its Emiratisation ratio was over 40%, building on 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 earlier in the year.

Management comment

On behalf of the Board of Directors and the management team, Tirad Mahmoud, ADIB's CEO, said: "The second quarter of 2010 witnessed a number of achievements as we continued to position ADIB at the forefront of Islamic financial services. For the first time the Group's quarterly net profit passed AED 300 million as the Bank's net profit grew by 54.9% vs. the same quarter last year reflecting the new management teams' prudent risk decisions and commitment to growth during the uncertain economic times. The foundation of our growth remains firmly on customer service excellence and convenient delivery channels, including: relationship managers with enhanced skills; more branches and ATMs; and a series of innovative e-solutions. The focus on customers and risk management when combined with our outstanding capital and liquidity position means that we will now be able to sustain our growth into the future and we are particularly proud that our achievements have been recognized by The Banker Middle East which recently awarded ADIB the coveted Best Islamic Bank in the Middle East title.

We took decisive cost of credit action in 2009 and will continue to do so in 2010. It is noteworthy that our collective provisions now stand at over AED 592 million as we apply our pre-emptive 1.25% policy as a minimum. We also take appropriate individual provisions in line with our 90 days past due approach. Since the new management team took over in early 2008, total credit provisions and impairments have increased to AED 2,402 million from AED 403 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 now clearly in evidence as our non-performing portfolio has stabilized and we will continue to work with those customers who are in genuine difficulty to assist them in the sustainable restructuring of their financing.

Both our Retail Banking and Wholesale Banking franchises had a particularly good quarter on the back of their focus on quality asset growth backed by strong customer relationships. We saw customer financing grow by over AED 3.3 billion in the quarter to AED 45.2 billion supported by our deposits increasing by AED 1.9 billion to AED 51.9 billion.

Banking as it should be

In reference to the launch of ADIB's new brand positioning in June, Tirad said: "The new identity symbolizes a new promise to our customers. It is part of an initiative that changes the face of ADIB to align with our vision to become a top-tier Islamic Financial Services Group and to deliver on our mission of Islamic financial solutions for the global community. Our new promise is built on the premise "Banking as it should be." This tagline captures our commitment to provide all our stakeholders with world-class ethical banking based on our core values:

• We keep it Simple and Sensible

• We work for Mutual Benefit

• We are Transparent

• We nurture Hospitality and Tolerance

• We are Shari'a Inspired

Our new logo was designed to reinforce these values and represents an evolution from our existing one. We are proud of our legacy as the first Islamic bank to be established in Abu Dhabi and inaugurated by the late Sheikh Zayed, may his soul rest in peace, and want to build on the foundation of trust that we have with all our stakeholders to deliver a customer centric proposition based on our new brand promise.

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 1.5 million for Q2 2010. The second quarter has been a difficult period of the financial markets and yet ADIFS has continued to gain market share as it positions itself as one of the leading securities agency business in the UAE. We are proud to report that in June ADIFS was the largest brokerage house on the ADX and 2nd largest, by market share, in the UAE. Our new e-trading platform has gone live and will be rolled out to our customers in the third quarter.

Burooj, the Group's real estate subsidiary, continues to be run as an independent entity from the banking and financial services businesses. Burooj had a disappointing second quarter as the real estate sector remains under pressure and as a consequence posted a loss of AED 31.5 million for the quarter vs. a profit of AED 2.1 million in the first quarter. We expect the rest of the year to remain challenging for Burooj as market supply and demand factors depress values in the real estate sector."

Outlook for the rest of 2010

Providing guidance on the Bank's direction for 2010, Tirad said: "Despite the continuation of the weak global economic environment ADIB remains firmly on a growth trajectory. While the brunt of the legacy portfolio's cost of credit was absorbed in 2009 we will continue to take further prudent measures in 2010 and, depending on the credit and real estate markets, 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. On the back of our rebranding we are implementing a broad range of initiatives to enhance our product portfolio, improve our processes and introduce new banking channels, all of which is designed to provide support to our customers, with best in market service and Shari'a inspired solutions.

Specifically:

We will continue to grow our Retail Banking presence across the UAE, where our target remains adding 13 more branches this year and reaching 70 branches, thereby giving us the necessary network scope to drive our growth. We look forward to launching our new priority banking proposition and re-launching our women's banking, thereby enhancing the service we deliver to two of our main customer groups.We will roll out our Wealth Management product range 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 our initial focus is to ensure that all eligible private banking customers receive, as a minimum, our priority banking services while we build the new value proposition for our high net worth customers. .The Wholesale Banking business has now gathered the necessary momentum with our Corporate Finance and Investment Banking teams already delivering on a number of mandates. Our focus is now on our Transaction Banking propositions which we are building to support our SME, corporate, commercial and public sector clients. All these initiatives will be backed by the continued investment in talented individuals and systems – including an upgrade in our core banking system - 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. 


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