Abu Dhabi Islamic Bank’s Q2 profit up 45% on lower provisioning charges

The lender reported a 10 per cent increase in customer financing during the period

The Abu Dhabi lender is benefiting from rising interest rates. Photo: ADIB

Abu Dhabi Islamic Bank, the emirate’s biggest Sharia-compliant lender, reported a 45 per cent year-on-year rise in net profit in the second quarter of 2022 on lower loan loss provisions and higher interest margins.

Profit attributable to shareholders after zakat and tax in the April to June period stood at Dh726 million ($197.6m), driven by a 51 per cent decline in impairment provisioning charges to Dh114m, the bank said in a statement on Wednesday to the Abu Dhabi Securities Exchange, where its shares are traded.

The results beat EFG Hermes' forecast of a 40 per cent rise in profit.

Total operating income for the second quarter of the year rose 9 per cent to Dh1.42 billion, while assets increased close to 9 per cent annually to reach Dh142bn.

The bank also reported a 10 per cent rise in net customer financing during the period to Dh92.19bn, largely driven by its retail banking business.

“We have been experiencing strong growth in the retail banking business. In fact, our financing volumes have exceeded pre-Covid levels and our digital initiatives are giving us major cost advantages,” Mohamed Abdelbary, ADIB's group chief financial officer, told The National.

The bank expects overall financing growth of 5 per cent to 7 per cent for the full year, he said.

ADIB is also well-positioned to benefit from rising interest rates, considering its high level of current and savings account (Casa) deposits, Mr Abdelbary said.

For every 50 basis points increase in interest rates, ADIB will benefit Dh120m in terms of profitability, he previously said.

“Nearly 60 per cent of our deposits come from Casa. In the rising interest rates environment, this will give a big boost to our interest margins. Additionally, a significant portion of our financing is in the variable rate category, making our pricing very dynamic to reflect rate increases fast,” he said.

For the first half of the year, the bank reported a net profit growth of 30 per cent to Dh1.4bn, while operating income rose 7 per cent to Dh2.8bn. For the first six months of the year, impairment charges declined 38 per cent annually to Dh227m.

ADIB also continued to maintain a healthy liquidity position and a robust capital position with the common equity tier 1 ratio at 12.8 per cent, a tier 1 ratio of 16.9 per cent and capital adequacy ratio of 18 per cent as of June 30, it said.

The bank's "robust" performance was driven by "positive increases in our assets, revenues and gross financing", said Jawaan Al Khail, chairman of ADIB.

"Our performance reflects solid momentum across our core businesses under our 2025 growth strategy and improved macroeconomic conditions."

The UAE economy bounced back strongly from the Covid-driven slowdown last year and has continued momentum into this year despite global geopolitical headwinds and pandemic-related uncertainties.

The country's economy, the Arab world's second largest, is set to expand by an annual 5.4 per cent this year, driven by its success in containing the health and economic impact of the pandemic, according to the Central Bank of the UAE.

The International Monetary Fund projects that the UAE economy will grow 4.2 per cent this year, while Emirates NBD forecasts growth of 5.7 per cent and Abu Dhabi Commercial Bank estimates a 6 per cent expansion, supported by a sharp rise in the oil sector.