ADCB first-quarter profit up as impairments drop

ADCB said money set aside to cover bad debt dropped during the first quarter. Delores Johnson / The National

Abu Dhabi Commercial Bank said that its first-quarter net profit rose 8 per cent, boosted by gains in net interest and Islamic financing income and tight control of expenses.

At the same time, non-interest income also rose and money set aside to cover bad debt dropped amid increasing signs that the UAE economy may be turning the corner after several years of slower growth. The result beat estimates from analysts that track the bank.

Net income increased to Dh1.1 billion in the first three months of the year from Dh1.02bn in the same period last year, the bank said. Total net interest and Islamic financing income gained almost 4 per cent to Dh1.63bn in the quarter versus Dh1.57bn a year earlier. Impairment allowances fell almost 10 per cent to Dh386 million in the first three months of the year from Dh352m in a year earlier.

“The bank had a very good start to the year, reporting strong top and bottom line growth for the first three months of 2017,” said Ala’a Eraiqat, its chief executive.

“Our stringent cost controls to drive efficiency across the bank resulted in a significant improvement in our cost to income ratio year-on-year. As a highly disciplined bank, we continue to take measures to address the prevailing economic conditions with rigorous risk management and cost containment.”

Four analysts polled by Bloomberg gave profit estimates ranging between Dh1.028bn and Dh982m, with the median standing at Dh1.006bn.

“It seems ADCB is in a comfortable position in the short term,” said Sanyalaksna Manibhandu, the head of research at NBAD Securities. “The market will be questioning the medium-term outlook, given ADCB’s UAE-centric focus amid keener competition from NBAD post-merger completion and ongoing banking mergers in Qatar and the KSA that will lead to increasing competition in the UAE sector from GCC neighbours as well as from domestic banks.”

First Abu Dhabi Bank, as National Bank of Abu Dhabi and FGB are now known after they merged in March, and Emirates NBD, the country’s two biggest lenders, posted first-quarter earnings that also showed an improvement in non-performing loans, a sign that the debt crisis that plagued small and medium-sized enterprises in the wake of the oil price crash is subsiding.

Despite what had been a relatively weak period for the banking industry there are signs of a pick-up, such as an increase in lending despite the provisions that banks are continuing to take, as well as tighter control on expenses, according to analysts.

The global consultancy Alvarez & Marsal said in its inaugural report on the country’s banking sector last month that while the profitability of UAE banks has been dented in recent years, the industry remains in better shape overall than its global peers.

Still, competitive pressures remain amid an economy still in a downturn and it is likely that those banks that are best diversified in their lines of business and have activities abroad will fare better.

The UAE’s economy is forecast to expand at just 1.5 per cent this year, according to the IMF, which today launches its regional economic outlook for the Middle East, the Gulf and North Africa.

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