ADCB Q2 profit rises on higher interest income and lower provisions

The Abu Dhabi lender's total net interest income and income from Islamic financing rose 11.25% to Dh2.57bn

For the first half of 2022, ADCB reported a net profit of Dh3bn, up 20 per cent yearly. Khushnum Bhandari/ The National

Abu Dhabi Commercial Bank (ADCB), the UAE’s third-largest lender, has reported a 12 per cent annual increase in second-quarter net profit, largely driven by higher interest rates and higher non-interest income in the context of an improving UAE economy.

Net profit for the three months to end of June climbed to Dh1.57 billion ($428 million), ADCB said in a statement on Thursday to the Abu Dhabi Securities Exchange, where its shares are traded.

Total net interest income and income from Islamic financing rose 11.25 per cent to Dh2.57bn.

Impairment allowances declined 3 per cent yearly to Dh655m from Dh678m as operating expenses rose 22 per cent to Dh2.2bn in the second quarter.

“These solid financial results reflect the successful implementation of our five-year strategy as the bank continues to invest in digital transformation to support the next phase of expansion,” said Ala'a Eraiqat, group chief executive of ADCB.

For the first half of the year, the bank reported a net profit of Dh3.05bn, up 20 per cent yearly as net interest income rose 6 per cent to 4.71bn.

“Over the past two years, as the UAE successfully navigated the global pandemic into a robust recovery, ADCB has played a key role in protecting and promoting the interest of all its stakeholders," Mr Eraiqat said.

During the first half of the year the bank’s total assets increased 8 per cent to Dh476bn, as net loans and advances rose 2 per cent yearly to Dh243bn at the end of June and total customer deposits rose 17 per cent to Dh292bn.

Rising interest rate environment has helped the bank to boost its interest income in the first half of the year.

The lender also improved its risk-adjusted net interest margin in the first half as a result of a strategic rebalancing of its loan portfolio.

“We continue to increase lending to targeted economic sectors including manufacturing, trading and energy, while further reducing exposure to real estate”, said Deepak Khullar, group chief financial officer at ADCB.

The bank continues to benefit from diversified income streams, with non-interest income of Dh924m, up 10 per cent in the second quarter year-on-year. Net fee and commission income of Dh505m was up 1 per cent yearly in the second quarter, with card-related fees rising 34 per cent from the previous year.

ADCB said its asset quality has been improving steadily.

"The bank maintains healthy asset quality metrics, with a cost of risk of 54 basis points in H1 22, in line with our medium-term guidance, while our NPL [non-performing loan] and provision coverage (including collateral) ratios improved to 5.59 per cent and 147 per cent, respectively”, Mr Khullar said.

ADCB said it is in a strong financial position, benefiting from a robust balance sheet and diversified income streams and is well-prepared to weather an increasingly challenging global economic environment.

The bank is optimistic about the UAE's economic resilience as the country implements growth and diversification strategies while moving on a strong growth trajectory.

The UAE economy is set to post its strongest annual expansion since 2011 after it grew by 8.2 per cent in the first three months of this year on higher oil prices and measures to mitigate the effects of the Covid-19 pandemic, the UAE Central Bank.

The Arab world’s second-largest economy, which expanded 3.8 per cent in 2021, is expected to grow 5.4 per cent and 4.2 per cent in 2022 and 2023, respectively, according to the latest projections by the banking regulator.