Abu Dhabi Islamic Bank (ADIB) Group posted a net profit of AED 322.6 million for Q2 2012. Despite the prevailing challenging market conditions, and an increasing number of regulatory changes, the performance from the main banking business remained strong as the Bank’s net profit grew by 10.1% to AED 396.6 million from AED 360.4 million in Q1 2012. The business highlights for Q2 2012 were:

• The focus on Retail Banking underpinned by ADIB’s number 1 rating for service saw the customer base increase by 9.1% year-on-year to 479,720 customers.
• ADIB opened its 73rd Retail branch in the UAE and installed its 500th ATM during the quarter, meaning the Bank now has the third largest Retail network in the UAE and remains on track to have 80 branches by the end of Q1 2013.
• ADIB initiated operations in the United Kingdom and Iraq during the quarter and plans to open branches in Qatar and Sudan by year-end.
• Customer financing growth was restricted to 4.4% year-on-year as ADIB preserved capital in line with its intention to boost Tier 1 capital to over 15% from the current level of 13.45%.
• Cost of funds were further reduced as current and savings account balances reached AED 30.4 billion at the end of Q2 2012, a 24.2% year-on-year increase which is significantly above market.
• With a Customer Financing to Deposits Ratio of 83% ADIB already meets both of the proposed new Central Bank of the UAE liquidity ratios and intends to be an early adopter of the proposed Basel III regulations.
• Despite non-performing assets declining by 0.6% in the quarter, ADIB continued its conservative policy by taking an additional AED 139.1 million in credit provisions to ensure a healthy pre-collateral non-performing asset coverage ratio of 74.3%.
• The Group continued the quarterly impairment review of the portfolio held by its real estate subsidiary, Burooj Properties and as a result made further provisions in this regard.

A best practice approach to risk management continues to underpin the Bank’s strategy
Despite a decline in total non-performing assets of 0.6% in Q2 2012, ADIB’s management continued its rigorous approach to provisioning and impairment recognition. As a result, the Bank has taken an additional AED 139.1 million in credit provisions in Q2 2012, thereby increasing total credit provisions to AED 3,256 million with specific credit provisions at AED 2,441 million and collective provisions at AED 815 million. Total credit provisions now amount to 6.1% of gross customer financing assets and represent a pre-collateral non-performing coverage ratio of 74.3%. It is noteworthy that the Bank’s collective provisions now represent 1.72% of total customer risk weighted assets and are ahead of the Central Bank of the UAE requirements of 1.5%. ADIB’s best practice approach to managing its non-performing portfolio was further highlighted in a recent Rating Agency report in which ADIB was confirmed as one of the UAE banks that are transparent in reporting restructured credits.

In addition to the legacy credit portfolio, a further AED 47.5 million in impairments were taken against the real estate subsidiary’s portfolio in the second quarter of 2012, bringing total impairments related to this business to AED 433 million over the past three and half years as it tracked the down turn in the real estate market. As a result, the Group net profit increased by a conservative 2.3% in Q2 2012 to reach AED 322.6 million versus Q2 2011, and represents an 18.6% compounded net profit growth rate over the past three years.

Liquidity
A focus on deepening customer relationships by the Retail Banking, Private Banking and Wholesale Banking franchises, backed by strong Treasury and Transaction Banking units, meant that ADIB continued to maintain its position as one of the most liquid banks in the UAE. At the end of Q2 2012, Customer deposits were AED 60.5 billion, Central Bank placements were AED 4.7 billion and the net interbank position was AED 7.8 billion. A continued focus on reducing the cost of funds as well as a proven ability to manage the Bank’s maturity profile as evidenced by ongoing Sukuk placements, saw current and savings accounts grow by 24.2% since Q2 2011 to reach AED 30.4 billion at 30 June 2012 while overall deposits increased 13.8% to AED 60.5 billion during the same period.

On the asset side, net customer financing reached a new high of AED 50.3 billion (AED 48.1 billion as at 30 June 2011) and the Bank ended the quarter with a customer financing to deposits ratio of 83.0% and an advances to stable funds ratio of 80.8%, which is significantly better than the regulatory threshold of 100%. Furthermore, it is noteworthy that ADIB’s Quick Asset to Total Asset Ratio is 25.2% and the Bank already meets both of the proposed new regulatory liquidity ratios and intends to be an early adopter of the Basel III liquidity ratios as proposed by the Central Bank of the UAE.

Capital strength
The Bank’s capital position remained strong with a Capital Adequacy ratio of 16.55% under Basel II principles and a Basel II Tier 1 capital ratio of 13.45% at the end of the second quarter of 2012. ADIB continues to focus on capital optimization and further strengthening its capital position to facilitate its growth strategy and in this regard restricted customer asset growth to 4.4% year-on-year as it turns its attention to improving its Tier 1 capital ratio to above 15% in the near term.

Cost management
Despite the establishment of subsidiaries in the United Kingdom and Saudi Arabia and the opening of branch operations in Iraq, with the consequent expenditure on related infrastructure and human capital, as well as the investment in 116 ATMs and 7 branches in UAE during the past 12 months the Group’s operating expenses remained flat to Q1 2012 and increased by only 5.7% year-on-year. The Group cost to income ratio was 42.6% for Q2 2012 (39.3% - Q2 2011 and 43.3% for Q1 2012) while the Bank’s cost to income ratio was 39.7% for Q2 2012 (38.2% - Q2 2011 and 40.9% for Q1 2012). ADIB expects to continue its investment program as its builds the defining universal Islamic finance proposition both domestically and internationally. As a result, the Bank’s cost to income ratio is expected to start improving gradually in the medium-term as the ongoing investment in growth is matched by a marginally higher relative increase in revenue and further process efficiencies.

Human resources
Despite the growth of its local and international operations the Bank’s headcount has increased by 6 in the past 12 months, as a result of a continued emphasis on efficiency, and now stands at 1,668. In addition to being recognized as the number one bank for customer service in the UAE, ADIB is particularly proud of its ongoing efforts in Emiratisation and the development of its own talent.

We accept Guest Posts

Download the Dubai City Guide iPhone mobile app

DubaiCityGuide.com is owned and managed by Cyber Gear