ADIB shows resilience as it settles Islamic bond in full

Sanyalaksna Manibhandu, head of research at NBAD Securities, said the payment was a sign of the bank’s strong balance sheet and speculated that more issues from the bank were likely to follow.

Abu Dhabi Islamic Bank said in October that its third-quarter profit rose 1 per cent, buttressed by higher revenue even as impairment charges rose. Mona Al Marzooqi / The National

Abu Dhabi Islamic Bank (ADIB), the biggest Sharia-compliant lender in the emirate, on Wednesday said it had repaid in full a US$500 million Islamic bond or sukuk from its own resources, reflecting what it said was its strong liquidity position amid difficult market conditions.

“ADIB’s ability to repay the sukuk from its own resources and without the need for refinancing demonstrates our strong liquidity position, especially in these challenging market conditions,” said Abdul Qadir Khanani, group treasurer at ADIB in a statement.

“The repayment of these sukuk shows the deep confidence that investors across a range of geographies have in ADIB and its long-term future. We will continue to explore potential opportunities to expand our funding sources as and when needed in the future.”

The five-year sukuk matured on Wednesday.

Sanyalaksna Manibhandu, head of research at NBAD Securities, agreed, saying the payment was a sign of the bank’s strong balance sheet and speculated that more issues from the bank were likely to follow.

“The bank may in the coming months be looking to refinance at a lower cost of funding or raise capital via an equity or an equity-linked instrument,” he said. “ADIB is generally in the forefront of issuing capital instruments. The bank issued a rights issue in 2015 and justified the exercise by suggesting banks generally need to have a mix of instruments in the capital structure.”

Other UAE banks have raised financing in recent months. Abu Dhabi Commercial Bank said last month it had secured $600m three-year syndicated loan.

Despite the resilience of ADIB, banks in the UAE have not been having the best of times amid the oil price lull. Over the past two years, banks have been hit by dwindling deposits as governments scrambled to find cash as a first line of defence, making lending more difficult and riskier as defaults increased.

That has pushed up the loan to deposit rate, a measure of how much liquidity is available in the system, to 97.3 per cent, according to October data from the Central Bank. That has been rising since July, when that ratio stood at 96.6 per cent.

“Latest central bank data shows that liquidity continues to be tight,” said Shabbir Malik, a Dubai-based analyst at the Egyptian investment bank EFG-Hermes. “ADIB, however, is well positioned relative to the sector in terms of liquidity.”

ADIB had an advances to deposit ratio of 79.7 per cent as of September 30. At a time when many banks have also been hit profit-wise, the Islamic lender has held its own.

The bank said in October that its third-quarter profit rose 1 per cent, buttressed by higher revenue even as impairment charges rose.

Profit increased to Dh508.9m in the three months ended September compared with Dh503.2m in the same period last year. Net revenues rose 6.6 per cent to Dh1.37 billion versus Dh1.28bn in the same period of last year.

However, the bank’s chief executive at the time sounded a note of caution going forward, saying the lender would refrain from taking on too much risk amid a global economic slowdown.

“The levels of activity and growth in the major economies around the world remain challenging,” said Tirad Al Mahmoud.

“As a result, we continue to forecast modest new customer financing growth and, where credit extension is targeted, will continue our practice of only doing so in such a manner that the risk-related returns are commensurate with our long-term regulatory capital needs and return of shareholders’ equity goals.”

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