ADCB records second quarter dip as lender presses on with merger integration

Newly-combined entity's cost of funds increased, according to the bank

Abu Dhabi Commercial Bank says it expects the integration of three-way merger with UNB and Al Hilal Bank to conclude by the second quarter of next year. Courtesy ADCB
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Abu Dhabi Commercial Bank (ADCB) reported an 11 per cent decline in second quarter net profit for the newly-combined entity created through the three-way merger with Union National Bank and Al Hilal Bank.

The ADCB group reported a net profit of Dh1.45 billion for the three months to June 30. Total net interest and Islamic finance income dropped 7 per cent to Dh2.6bn.

In a note accompanying the pro forma results on the Abu Dhabi Securities Exchange, where the bank’s shares are traded, ADCB said it was “making strong progress on integration with a timeline that is more aggressive than industry precedents”.

“The bank is implementing an ambitious plan to unify the customer experience under the ADCB brand in Q4 2019. Full systems and operational integration is expected to be delivered by Q4 2020,” it added.

ADCB formally completed a merger with Union National Bank on May 1 this year, with the combined entity acquiring Al Hilal Bank in a deal which created the UAE’s third-biggest lender by assets – behind First Abu Dhabi Bank and Emirates NBD.

ADCB’s net profit for the six months to June 30 fell 15 per cent year-on-year to Dh2.78bn. The lender said that net interest and Islamic finance income for the six-month period dropped 6 per cent to Dh5.22bn, which it said was due to harmonising the combined entity’s liquidity management standards and “intense competition on loan yields”.

The bank's cost of funds also increased to 2.56 per cent from 1.87 per cent in the previous year, which it attributed to "a change in the composition of the liability base".

“Certain matters arose during the due diligence process associated with the transaction” it said without elaborating.

“ADCB Group will carry out a thorough assessment of the probable impact, which will be fully quantified and reported at the year end,” it added.

Progress was also made in terms of cost synergies, with Dh69m of synergies already realised from its target of achieving Dh615m of savings per year. In total, some Dh222m of cost synergies have been identified, the bank’s note said.

The integration of Al Hilal Bank, which will retain its own brand offering Islamic banking services, is already “close to completion”, ADCB said.

“Preparations are well advanced for implementation of interoperability of ADCB and UNB branches, ATMs and CDMs [cash deposit machines] in Q4 2019, which will be accompanies by a roll out of the ADCB brand across all physical and digital channels,” it added.

Shabbir Malik, an analyst with EFG Hermes said in a note that the results showed “the typical teething problems encountered by banks during the integration stage”, as ADCB’s loan book fell 4.5 per cent quarter-on-quarter and non-interest income dropped 15 per cent during the quarter.

However, he said the bank’s earnings were slightly higher than EFG Hermes’ estimate due to lower provisioning, and he said net interest margins edged up 5 per cent to 2.79 per cent during the three-month period.