Abu Dhabi Commercial Bank (ADCB) made a powerful comeback yesterday as it reported strong profit growth and substantial reduction in loan and investment impairments.
The bank reported Dh3 billion net profits for 2011 compared to Dh391 million reported in 2010. In the fourth quarter, the bank's net profit increased 30 per cent to Dh514 million compared to Dh371 million reported in the fourth quarter of 2010.
Commenting on the strong results, Eisa Al Suwaidi, Chairman of ADCB, said: "This success confirms the effectiveness of our strategic pillars, which have proven fundamental in supporting and implementing our business objectives."
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Although the fourth quarter results fell short of analysts' expectations, the bank's overall performance is expected to satisfy the markets. "ADCB missed our quarterly estimates of Dh767 million by 33 per cent due to higher provisions and lower non-interest posted by the bank against our expectations. Despite falling short of our expectations, we remain satisfied with the overall performance of the bank," Naveed Ahmad, senior financial analyst at Global Investment House, said.
Revenue from stake sale
The massive jump in ADCB's full year profit was partly aided by the income from the sale of its stake in Malaysia's RHB Capital last year. The bank gained Dh1.31 billion from the RHB stake sale.
Additionally, a significant drop in impairment allowances on loans and advances also boosted the bank's profits last year. ADCB said its impairments fell to Dh2.08 billion from Dh2.86 billion in 2010.
For the full year, the bank's net interest income and Islamic financing income was up 27 per cent to Dh4.68 billion as operating income surged 21 per cent to Dh6 billion. Operating profit before impairment allowances is up 20 per cent at Dh4 billion and the net interest margin improved from 2.57 per cent in 2010 to 3.1 per cent in 2011.
The bank strengthened its capital adequacy and liquidity ratios in 2011. Its capital adequacy ratio improved to 22.51 per cent from 16.65 per cent in 2010. Liquidity ratio at the end of last year was at 22.13 per cent compared to 17.45 per cent in 2010.
"During 2011, the bank significantly strengthened its capital position, improved liquidity levels and funding profile, enhanced risk management capabilities and operating efficiency," Ala'a Eraiqat, member of the Board and Chief Executive Officer of ADCB, said.
While the bank was a net provider of liquidity in the interbank market, its loan-to-deposit ratio was at 113.53 per cent at the close of 2011 compared to 115.68 per cent in 2010.
Impairment allowances on doubtful loans and advances, net of recoveries amounted to Dh2.08 billion in 2011 compared to Dh2.86 billion in 2010. Non-performing loan (NPL) ratio at the close of the year was at 4.6 per cent compared to 11.1 per cent (including 5.8 per cent from Dubai World exposure) as on December 31, 2010. Provision coverage ratio was at 80 per cent in 2011.
"We continued to pro-actively manage credit quality and we are pleased to see signs of improvement in asset quality, with reported NPLs reducing," Eraiqat said.
Portfolio impairment allowance balance was Dh2.05 billion and 1.59 per cent of credit risk weighted assets as on December 21, 2011. A UAE Central Bank directive requires banks to increase the level of collective provisions to 1.5 per cent of credit risk weighted assets by 2014.
The bank yesterday said it substantially reduced its exposure to investments in credit default swaps (CDS) from Dh1.45 billion as on December 31, 2010 to Dh55 million as on December 31, 2011.
In the light of the 2011 record financial results, the Board of Directors has recommended a 20 per cent cash dividend to shareholders of Dh1.11 billion, equivalent to 37 per cent of net profit.
In the second quarter of 2011, ADCB sold its stake in RHB Capital Berhad in Malaysia. During the year, the bank also completed the acquisition and integration of the Royal Bank of Scotland's UAE Retail Banking, Wealth Management and SME Businesses. Industry sources have indicated the bank is in negotiations with Lloyds Banking Group to buy its UAE operations.