Abu Dhabi's FAB reports 5% rise in 2Q net income as operating income climbs

The UAE's biggest lender says half year net profit climbed to Dh6.3bn, driven by revenue growth

FAB maintained a strong balance sheet amid challenging market conditions. Chris Whiteoak / The National

First Abu Dhabi Bank, the UAE’s largest lender by assets, reported a 5 per cent year-on-year rise in its second quarter net income, beating analysts' estimates, as operating income and the revenues climbed.

Net income for the three-month period to the end of June rose to Dh3.2 billion, the lender said in a statement on Wednesday.  The quarterly income topped the highest Dh3.13bn estimate of analysts polled by Bloomberg.

Impairments for non-performing loans during the second quarter, however climbed to Dh467 million, a 10 per cent rise from the a year earlier period, the lender noted.

Net income for the first six months also climbed 4 per cent year-on-year to a record Dh6.3bn, driven by a 3 per cent rise in group revenue to Dh10bn mark. Continued cost control and prudent risk management, also helped the first-half profitability, it added.

“Despite challenging market conditions, the [FAB] Group achieved year-on year growth in assets, revenue and net profit, while maintaining a strong balance sheet and showing improved asset quality, liquidity and capital ratios," Abdulhamid Saeed, group chief executive, said. "Our risk-adjusted returns have also improved, in line with our commitment to enhance profitability across core businesses and targeted markets."

The Abu Dhabi-listed lender said its operating costs remained broadly flat year-on-year during the first six months of 2019, despite increased investments in digital and strategic initiatives. It maintained a "healthy asset quality" with non-performing loan ratio at 3.1 per cent and provision coverage of 111 per cent.

The bank's loans and advances at the end of the first half reached Dh366bn, a 6 per cent rise from a year-earlier, period. Customer deposits surged 7 per cent to Dh462bn for the period, it added.

The bank's board on Wednesday also discussed the foreign ownership limit (FOL) of the lender's stocks and proposed to remove the cap to support the UAE in "attracting capital, foreign investments and promoting economic growth", it said in the statement. The bank currently caps FOL at 40 per cent. The changes proposed would be subject to the supervision of regulatory authorities and would require amendments to the current laws and policies, it noted.

FAB, which reported a 4 per cent year-on-year rise in the first quarter of this year, said it remains optimistic about growth prospects going into the second half of the year.

“Looking ahead and despite a softer global outlook, we are confident in our ability to continue to leverage our leading franchise, diversified business model, and strong execution capabilities to deliver sustainable growth and maximise shareholder returns,” Mr Saeed said.

The bank, formed through the merger of the two biggest lenders in Abu Dhabi - National Bank of Abu Dhabi and First Gulf Bank in 2017, is at the forefront of Abu Dhabi’s economic development efforts.

The government of Abu Dhabi last month signed an agreement with FAB to extend state-backed loans to small and medium-sized enterprises in a bid to open more avenues of financing for the cash-strapped sector. FAB will extend loans to SMEs that will carry government guarantees in case of a default of up to 75 per cent of the loan amount, Saif Al Hajeri, chairman of Abu Dhabi's Department of Economic Development, said in June.

FAB will be the sole operator of the Dh9bn set aside for SMEs under the government's Ghadan 21 economic stimulus package, Salil Ahuja head of products portfolio and value propositions at FAB's business banking, told The National, at the time. The option to apply for government-backed funds will be open to both Emirati and expatriate-owned businesses in the emirate, with revenues as low as Dh15 million and up to Dh250m.

FAB is aiming for double digit growth on its SME business this year and increase its share of the UAE's SME market to beyond 20 per cent, Vikas Thapar, head of the business banking group at FAB told The National in May.

FAB, which currently controls about 15 per cent of total SME market share, is looking to achieve its targets by 2020. The combined book of FAB’s business banking group – primarily its SME business including assets and liabilities – grew a little more than 15 per cent in 2018 to Dh20bn and Mr Thapar expects it to grow by double digits this year as well.