First Gulf Bank registers a new record for 2010

Led by strong revenue growth in its core banking operations, First Gulf Bank, one of the largest equity based banks in the UAE, recorded a net profit of AED3.420 billion for the year 2010. This represents an increase of AED110.1 million or 3% higher than 2009 net profits. Consistency in financial performance in terms of positive growth in profitability, revenues, solid balance sheet ratios such as liquidity, capital adequacy and most importantly the strength of its core banking operations, added to the gains made during 2010. 

Commenting on the strong 2010 performance, Andre’ Sayegh, CEO of First Gulf Bank said: “We are very pleased with our 2010 financial performance, which resulted in a record profit in the history of First Gulf Bank. This achievement demonstrates the significant resilience of First Gulf Bank’s financial performance even during this cycle of economic slowdown. This outstanding performance is a clear confirmation that the business model set under the direction of the Board of Directors is solid and dynamic. We are particularly pleased to announce the noteworthy gains in our core banking operations throughout 2010 which represented around 93% of the Group Net Profit. Growth in profitability combined with strong balance sheet position and ratios remain the core of First Gulf Bank’s financial model. Most important is First Gulf Bank commitment to play a growing role in the UAE economy as it gathers momentum going forward. Our policy favors a prudent and gradual overseas expansion.” 

Cash Dividend and Bonus Shares

The Board of Directors expressed their satisfaction to the 2010 financial performance and recommended in today’s meeting the distribution of a cash dividend 60% of capital or AED0.60 per share. This is over and above the proposal made during the meeting on January 6^th 2011, to distribute 75 million bonus shares to the shareholders. These shares were part of the buy-back initiative of the bank over the past two years. This is equivalent to an additional 5% in free shares to be granted to shareholders after the approval of the respective authorities to be followed by the approval of the Extraordinary General Assembly of Shareholders. 

Abdulhamid Saeed Managing Director, First Gulf Bank, comments: “In an initiative to support FGB shareholders, The Board of Directors, after considering and analyzing several options, preferred not to sell the shares back to the market, and decided to distribute the shares back to our shareholders in the form of bonus shares. This proposition is intended to have a positive impact on the share market in general and ensures an overall improvement in liquidity and shareholders’ value” 

Fourth Quarter 2010 results

Net profit for the fourth quarter of 2010 was AED865 million, 1% higher than the same quarter in 2009 at AED855 million. Net interest and income from Islamic financing were major contributors to the bottom line, at AED1.105 billion, which are 3% higher than the previous quarter and 9% higher than the fourth quarter of 2009. Corporate and retail fees and commissions at AED336 million were 24% higher than the same quarter of 2009. 

Earnings Per Share (EPS)

For the full year of 2010 the earnings per share stood at AED2.15, 4%higher than the AED2.06 achieved in 2009. “To our shareholders, what counts is the Earnings Per Share. For this reason, we remain committed and focused on generating a consistent growth in the bank EPS by maintaining a dynamic and efficient banking operations,” said Sayegh. 

Balance Sheet – Liquidity

The balance sheet by end of year 2010 showed a comfortable liquidity position. The liquid assets ratio increased to 13.4% up from 8.1% at the end of 2009. 

The loan to deposit ratio was at 96.8% by the end of 2010, compared to 104.6% by end of 2009; the result of an increase in customer deposits by 14% against a conservative increase in loans and advances by 6% during the year 2010.This lead to a significant improvement of the liquidity position of the bank. 

The UAE Central Bank advance to stable deposit ratio by year end 2010 stood at 80%, far below the regulatory maximum of 100%. 

Balance Sheet - Capital Adequacy

Shareholders’ equity by end of 2010 was in excess of AED24 billion, 7%higher than the previous year. Capital adequacy ratio, after the proposed cash dividend distribution this year would be, at 22.9%, one of the highest in the UAE banking industry and the Tier 1 Capital Ratio would be at 19.6%.This would keep the bank, over the coming few years, in a very solid position against the future requirements of Basel III. 

Mandatory Convertible Bonds – Early conversion

During today’s meeting the Board of Directors of FGB approved the early conversion of the 3 year Mandatory Convertible Bonds issued in July 2008 for a total amount of AED3.6 billion. The bonds will be converted, immediately after approval of the respective authorities, into ordinary shares of FGB at the initial terms of the issuance and at a conversion price of AED28.80 per share. 

Abdulhamid Saeed Managing Director at FGB said: “The Board of Directors is very appreciative to the strategic mandatory convertible bond partners. Now, as common shareholders, we are certain, that they will reap the benefits from their investment from the future growth of the bank over the years to come. ” 

Provisioning

During the fourth quarter of 2010, the bank adopted the new UAE Central Bank circular of November 2010, on regulations for classifications of loans and determining their provisions. Accordingly, the bank started applying the 90 days overdue rule on its NPL portfolio and applying its general provision as per the new requirements of the circular. By the end of 2010, the NPLs to gross loans ratio stood at 3.7% compared to 3.3% by the end of 2009. The provision coverage ratio was at 89.4% against 81.7 %at the end of 2009. The ratios of 2009 were adjusted to retroactively reflect the 90 days overdue rule. 

The 3.7% and 89.4% ratios would be revised to 4.6% and 72.1% respectively if the Dubai World exposure was added to the NPLs of the closing balance of 2010. 

“As we are now applying the 90 days overdue rule, we are content with the provision coverage level, as these ratios do not take into consideration the substantial security and collateral, which the bank is holding against its loan portfolio.” said Sayegh 

2010 Income statement highlights

Revenue for FY2010 reached AED 6.305 billion or 2% higher than the revenue of AED 6.164 billion in FY2009. 

Revenue from the core banking operations stood at AED5.903 billion an increase by 11% compared to last year, while net profit from core banking operations reached AED3.170 billion an increase of 27% compared to 2009. 

Net interest income and income from Islamic financing for the year 2010 stood at AED4.257 billion and was 11% higher than 2009, this was the result of efficient management of the sources and uses of funds. The bank was, in effect, able to maintain its net interest margin at the 3.59% level in 2010, a minor decrease against 2009 level of 3.67%. 

Andre Sayegh added: “These indicators verify the growth of our core business and reaffirm the success of our robust strategy. We are well positioned to make that leap towards being a major regional player, as the continued year-on-year rise in core banking indicators position us well for the future.”   

Over the last couple of years, the bank maintained a strong control over its expenses, reflected in a cost to income ratio at 17.8% in 2010 and 17.5% in 2009. 

André Sayegh continued: “This ratio is by far the lowest when compared to our peers in the region. Now that the worst of the global financial crisis is behind us, we look to the future more confidently, and we will continue to invest and develop our human resources capabilities in line with the growing opportunities locally and overseas.” 

A prestigious award: “2010 Bank of the Year- UAE” by The Banker Awards of London.

In 2010, the bank was named ’Bank of the Year UAE’ at the Bankers Awards for the second consecutive year, reflecting the continuous success and the strength which First Gulf Bank enjoys today.