Abu Dhabi Islamic Bank beats forecasts with 5% rise in profit

Abu Dhabi Islamic Bank said second-quarter profit rose by 5 per cent, supported by higher commission and income fees. The rise came despite a sharp increase in provisions in the quarter.

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The country's second-biggest Islamic lender reported a net income of Dh316 million in the quarter ended June 30, up from Dh301.6m in the same period last year, beating a consensus of analyst estimates on Bloomberg News by 20 per cent. Revenues increased to Dh909.6m in the quarter, up 22.2 per cent from Dh744.2m in the same quarter last year. Credit provisions and impairments were at Dh235.8m, up 75.2 per cent from the same period last year.

The bank booked Dh148.9m in provisions in the quarter. It took an additional Dh86.9m in impairments against its property portfolio. ADIB said global uncertainty and regulatory oversight on the market would mean a challenging period ahead and expected to post single-digit growth in both assets and liabilities this year.

"While the brunt of the legacy portfolio's cost of credit was absorbed in 2009, and we took further action in 2010, we expect to continue to take prudent measures as necessary for both the bank and specifically Burooj [property] portfolios during the course of the year," the bank said in a statement to the Abu Dhabi bourse. The bank said its transaction banking and investment banking operations had experienced a 62 per cent rise in fee and commission income.

However brokerage operations had had a challenging quarter because of low volumes and market uncertainty. Nonetheless, ADIB posted a profit for this sector of Dh800,000 in the second quarter.

The bank said last week it had won regulatory approval from the Qatar financial regulatory authority to open an Islamic bank even after a central bank circular in that country had ordered conventional lenders to stop operating Islamic branches.

The bank would be permitted to carry on regulated activities in relation to deposit taking, providing and arranging financing facilities and managing investments, ADIB said. The bank was suspended from trading on the Abu Dhabi Securities Exchange as the filings were released to the market. Shares have jumped 10.4 per cent this year to Dh3.27.

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Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.

Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.

“Within the next two to three years, we are looking at reaching $2 to $3 billion as a conservative estimate and we do see an opportunity to do so,” said Mr AbuShaban.

Mercer does not directly make investments, but allocates clients’ money they have discretion to, to professional asset managers. They also provide advice to clients.

“We have buying power. We can negotiate on their (client’s) behalf with asset managers to provide them lower fees than they otherwise would have to get on their own,” he added.

Mercer Wealth’s clients include sovereign wealth funds, family offices, and insurance companies among others.

From its office in Dubai, Mercer also looks after Africa, India and Turkey, where they also see opportunity for growth.

Wealth creation in Middle East and Africa (MEA) grew 8.5 per cent to $8.1 trillion last year from $7.5tn in 2015, higher than last year’s global average of 6 per cent and the second-highest growth in a region after Asia-Pacific which grew 9.9 per cent, according to consultancy Boston Consulting Group (BCG). In the region, where wealth grew just 1.9 per cent in 2015 compared with 2014, a pickup in oil prices has helped in wealth generation.

BCG is forecasting MEA wealth will rise to $12tn by 2021, growing at an annual average of 8 per cent.

Drivers of wealth generation in the region will be split evenly between new wealth creation and growth of performance of existing assets, according to BCG.

Another general trend in the region is clients’ looking for a comprehensive approach to investing, according to Mr AbuShaban.

“Institutional investors or some of the families are seeing a slowdown in the available capital they have to invest and in that sense they are looking at optimizing the way they manage their portfolios and making sure they are not investing haphazardly and different parts of their investment are working together,” said Mr AbuShaban.

Some clients also have a higher appetite for risk, given the low interest-rate environment that does not provide enough yield for some institutional investors. These clients are keen to invest in illiquid assets, such as private equity and infrastructure.

“What we have seen is a desire for higher returns in what has been a low-return environment specifically in various fixed income or bonds,” he said.

“In this environment, we have seen a de facto increase in the risk that clients are taking in things like illiquid investments, private equity investments, infrastructure and private debt, those kind of investments were higher illiquidity results in incrementally higher returns.”

The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds, said in its 2016 report that has gradually increased its exposure in direct private equity and private credit transactions, mainly in Asian markets and especially in China and India. The authority’s private equity department focused on structured equities owing to “their defensive characteristics.”

'Dark Waters'

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Abu Dhabi Islamic Bank beats forecasts with 5% rise in profit

What's Up: ADIB posts a 5 per cent rise in the second quarter on higher commission and income fees.

Financial Fallout: Read The National's coverage of the global economic chaos

'Dark Waters'