Abu Dhabi Commercial Bank beat analysts' forecasts despite posting a 12.3 per cent drop in second-quarter net profit, weighed down by the need to set aside more cash for bad debts.
It is the third Abu Dhabi bank to report weak earnings, reflecting the struggles of the emirate’s banking sector as lower oil prices and reduced government spending feed through into the wider economy.
Abu Dhabi’s third-largest bank by assets made a net profit attributable to shareholders of Dh1.13 billion in the three months to June 30, compared to Dh1.28bn in the same period a year ago.
Four analysts had forecast a net profit for the quarter of Dh1.07bn. The bank’s earnings were dragged down by a steep rise in impairment charges, with Dh350.9 million set aside to cover bad debts in the second quarter compared to Dh83.9m in the same three months last year.
Net interest income from traditional banking operations also fell 1 per cent on the same three months of last year to Dh1.53bn.
These factors offset a 24 per cent increase in non-interest income, such as earnings from fees, to Dh616.7m. The bank noted, in relation to the first half of the year, that fees in its retail banking business had grown strongly on higher loan volumes and spending on credit cards.
“We remain prudent in our growth strategy and continue to focus on maintaining a diversified funding base while liquidity remains a top priority,” the chief executive Ala’a Eraiqat said.
The bank’s average net interest margin in the first half of the year fell to 3.1 per cent from 3.4 per cent in the corresponding period of last year, reflecting the lower amount the bank earned on its lending compared to how much it paid out to initially secure the funds.
Both the total amount of loans and deposits the bank held on June 30 were up 13 per cent year-on-year, to Dh154.9bn and Dh149.1bn, although loans had been growing at a faster rate than deposits in the first half of this year at 6 per cent and 4 per cent, respectively.
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