Abu Dhabi Islamic Bank Q1 Net Profit Posts Dhs 307.3 Mln

Abu Dhabi Islamic Bank (ADIB) posted a net profit of Dhs307.3m for Q1 2012. Despite the continued challenging market conditions, and an increasing number of regulations, the performance from the main banking business remained strong as the Bank’s net profit grew by 5.8% to Dhs360.4m from Dhs340.6m for Q1 2011.

Both the Retail and Wholesale Banking unit’s growth in market share was underpinned by ADIB’s ranking as the number one customer service bank in the UAE, a continuously improving network, a broadening product offering and a best practice approach to risk management. As a result customer numbers increased by 9.0% to 466,244, the 71st branch in the UAE opened, the ATM network reached 488 and the wealth management, transaction banking, treasury and investment banking solutions gained further momentum. Customer deposits and assets grew by 4.3% and 1.6% respectively while, in an encouraging sign, total non-performing assets declined by 4.8% in the quarter.

Notwithstanding the success of ADIB’s strategy throughout the global financial crises the Bank expects the environment for quality credit extension, underpinned by further regulations, to remain subdued for the rest of 2012.

The Bank further improved its strong liquidity position, as the advances to stable funds ratio improved to 81.7% at the end of 31 Mar 2012, while the continued focus on managing the cost of funds saw current and savings account balances reach Dhs27.9bn at the end of the period, an increase of 23.0% over Q1 2011. Furthermore, ADIB maintained its conservative approach to non-performing asset recognition and provisioning in line with both best practice and UAE Central Bank guidelines, ensuring a healthy pre-collateral non-performing asset coverage ratio of 70.2%. In addition the Group continued the quarterly impairment review of the portfolio held by the real estate subsidiary, Burooj Properties, and as a result made further provisions in this regard.

Despite a decline in total non-performing assets of 4.8% in Q1 2012, ADIB’s management continued its best practice approach to provisioning and impairment recognition. As a result, the Bank has taken an additional Dhs156.8m in credit provisions in Q1 2012, thereby increasing total credit provisions to over Dhs3.1bn with specific credit provisions at Dhs2,368m and collective provisions at Dhs798m. Total credit provisions now amount to 6.0% of gross customer financing assets and represent a pre-collateral non-performing coverage ratio of 70.2%. It is noteworthy that the Bank’s collective provisions now represent 1.70% of total customer risk weighted assets in recognition of the three year historical loss norms and ahead of the Central Bank of the UAE requirements of 1.5%. In addition a further Dhs29.3m in impairments were taken against the real estate subsidiary’s portfolio in the first quarter of 2012, bringing total impairments related to this business to Dhs385m over the past three years. As a result, while Group operating profit increased by 6.3% to Dhs493.4m and Bank posted a 5.8% increase in net profit to Dhs360.4m, the Group net profit increased by 0.9% in Q1 2012 to reach Dhs307.3m versus Q1 2011 – clearly highlighting the underlying strength of the core banking operations.

ADIB maintained its position as one of the most liquid banks in the UAE with customer deposits of Dhs57.6bn, Central Bank placements of Dhs4.9bn and a net interbank position of Dhs8.1bn. A continued focus on reducing the cost of funds in support of the Central Bank’s goal of lowering the interbank rate in the UAE, as well as a proven ability to manage the Bank’s maturity profile as evidenced by successful sukuk placements in 2010 and 2011, saw current and savings accounts grew by 23.0% since Q1 2011to reach Dhs27.9bn at 31 Mar 2012 while overall deposits increased 10.9% to Dhs57.6bn during the same period. Net customer financing grew to Dhs49.6bn (Dhs48.1bn as at 31 Mar 2011) and the Bank ended the quarter with a customer financing to deposits ratio of 86.2% and an advances to stable funds ratio of 81.7%, which is significantly better than the regulatory threshold of 100%.

The Bank’s capital position further strengthened since Q1 2011 with the Capital Adequacy ratio improving to 17.40% under Basel II principles and the Basel II Tier 1 capital ratio increasing to 14.26% at quarter end.

Investment in 164 ATMs and 5 branches in UAE during the past 12 months, the establishment of operations in the United Kingdom, Qatar, Sudan and Iraq, with the consequent investment in related infrastructure and human capital, saw the Group’s operating expenses increase by 9.5% year-on-year. The Group cost to income ratio was 43.3% for Q1 2012 (42.6% – Q1 2011) while the Bank’s cost to income ratio was 40.9% for Q1 2012 (39.7% – Q1 2011).

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 improve only 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.
Press Release