Abu Dhabi Islamic Bank (ADIB) posted a record net profit of AED 314.5 million for the third quarter of 2010, an increase of 31.3% over the same period in 2009. This is the third consecutive record quarter for ADIB. It coincides with the welcoming of ADIB’s four hundred thousandth customer, the opening of ADIB’s 60th branch in the UAE and the launch of a number of new card initiatives, most notably its co-branding with Etihad Airways. Total assets increased to AED 71.2 billion while the Bank maintained its strong liquidity by matching financing growth with deposit growth as the financing to deposits ratio improved to 87.3% at quarter end. ADIB continued its conservative approach to provisioning, maintaining its prudent policy of taking a minimum 1.25% collective provision and taking individual provisions as necessary.
A focus on the Bank’s vision and mission continues to drive growth
The third quarter of 2010 saw ADIB’s management continue to take a conservative approach to recognizing non-performing credit exposures and investments. As a result, the Bank has taken an additional AED 55.2 million in individual provisions and AED 110.4 million in collective provisions, thereby increasing total provisions to AED 2.08 billion, which now amounts to 4.22% of gross customer financing. Notwithstanding this, quarterly net profit reached a new high of AED 314.5 million reflecting the underlying strength of core banking operations.
Liquidity
In line with the historical focus on liquidity, ADIB grew its customer deposits by 29.3% to AED 54.0 billion (AED 41.8 billion in Q3 2009 – after adjusting to exclude AED 2.2 billion of deposits which were converted to Tier 2 Capital on 31 December 2009). Net customer financing grew by 20.1% to AED 47.2 billion (AED 39.2 billion as at September 30, 2009), further strengthening the advances to deposits ratio to 87.3%. The growth in customer financing comes on the back of a robust credit process that ensured the booking of AED 2.1 billion in quality assets, including a number of high-profile transactions, during the quarter across both the Personal Banking and Wholesale Banking customer segments.
Capital strength
The Bank’s capital position remains strong. Total capital resources, including both the Tier 1 and Tier 2 capital, as at September 30, 2010 improved to AED 13.2 billion vs. AED 10.8 billion at September 30, 2009. Capital adequacy ratio remained strong at 16.52% under Basel II principles (15.16% as at September 30, 2009) with the Basel II Tier 1 capital ratio stable at 13.23% (16.59% at September 30, 2009).
Cost management
Investments in 10 new branches in the past 12 months, related infrastructure and human capital saw operating expenses increase by 33.4% to AED 330.1 million year-on-year with the Group cost to income ratio increasing to 40.7%. The Bank’s cost to income ratio was a more acceptable 37.5% for the quarter down from 37.7% in the second quarter of 2010. ADIB expects Group cost to income ratio to further improve once the core growth investment cycle is completed and the non-banking businesses return to profitability.
Human resources
The bank's headcount increased marginally by 14 in the quarter and now stands at 1,571. Furthermore, ADIB is particularly proud of the fact that by the end of Q3 2010 the Bank’s Emiratisation ratio improved to over 41%. A focus on training and enhancing the professional qualifications of staff to better service customers has begun to prove itself as customer satisfaction levels have improved and numbers of customers attracted to ADIB’s value proposition increases.
Management comment
On behalf of the Board of Directors and the management team, Tirad Mahmoud, ADIB’s CEO, said: “The third quarter of 2010 has seen us build upon the momentum that was established in the first half of 2010 and is clear evidence of the success of our growth strategy. The 30.2% increase in the Bank’s net profit compared to the same quarter last year reflects our successes in meeting the needs of our customers and is particularly pleasing given that it has been achieved during challenging global economic times. The foundations of our growth remain customer service excellence, qualified staff and best practice risk management. This, when combined with our outstanding capital and liquidity position, means that we have entered a phase of sustainable growth as we move into the future.
‘It is now well recognized that the decisive cost of credit action we took in 2009 was market leading and we have continued with this approach in 2010. It is noteworthy that our collective provisions, based on taking a minimum of 1.25% of our gross performing financing portfolio, now stands at over AED 703 million. We have also taken appropriate individual provisions on the impaired portfolio in line with our 90 days past due and conservative collateral recognition approach. Since the new management team took over in 2008, total credit provisions and impairments have increased to AED 2,494 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 further reviewed and prudent decisions taken. The efforts of the two remedial management units we established in 2009 are now clearly visible and we will 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.
‘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 while the repositioning of our Private Banking proposition has begun. We saw customer financing grow by over AED 2.1 billion in the quarter to AED 47.2 billion matched by our deposits increasing by AED 2.2 billion to AED 54.0 billion as we balanced growth and liquidity.”
Other ADIB Group companies
Commenting on the performance of other Group companies besides the core Bank business, Tirad said: “ADIB’s stock-brokerage subsidiary, Abu Dhabi Islamic Financial Services, posted a small profit of AED 0.2 million for the quarter. The third quarter has been a very subdued period for the financial markets and it is a credit to the management team at ADIFS that they maintained profitability despite the fall in overall market volumes. This is proof that our efforts to position ADIFS as one of the leading securities agency businesses in the UAE are gaining ground. As part of this new positioning, our new e-trading platform has gone live and was rolled out to customers during the quarter as planned and is expected to materially enhance ADIFS transaction flow going forward.
‘Burooj, the Group’s real estate subsidiary, had another weak quarter, posting a loss of AED 28.5 million, which was slightly better than the loss of AED 31.5 million in the second quarter of this year. We expect the rest of the year to remain challenging for Burooj as real estate market supply and demand factors continue to depress values. Nonetheless Burooj continues to be operated independently from the banking and financial services business.”
Outlook for the rest of 2010
Providing guidance on the Bank’s direction for the remainder of 2010, Tirad said: “Despite the continuation of the weak global economic environment, ADIB remains firmly on it’s now established growth trajectory. While the brunt of the legacy portfolio’s cost of credit was absorbed in 2009 we will continue to take prudent measures, including further credit provisions and impairments, in line with the relevant policies and developments.”
