Arab Bank reports lower profit as pandemic has 'material impact' on business

Jordan's biggest lender said operating income fell 25% as income from interest and commissions declined

Arab Bank's headquarters in Amman, Jordan. The lender has more than 600 branches across five continents. Image courtesy of Arab Bank
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Arab Bank reported a 77 per cent decline in net income for 2020 as the pandemic had a "material impact" on business conditions, the chairman of Jordan's biggest lender said.

Net profit fell to $195.3 million, compared to $846.5m a year earlier, as net operating income fell by a quarter just over $1 billion. The company blamed a decrease in operating income on lower net interest and commission income, and a fall in the contribution of the bank’s associates in the Gulf.

The pandemic had "a material impact on businesses around the world and the economic environments in which they operate", chairman Sabih Masri said in a statement.

Governments and regulatory authorities globally undertook various programmes to mitigate the impact of the crisis, he said, adding that the bank had dealt with the challenges while maintaining "strong liquidity and capital".

Banks across the world are facing tougher operating environments, with historically low interest rates making it difficult to earn profits and lenders having to make higher provisions in anticipation of potential loan losses from struggling customers.

Fitch Ratings said in a report last month that it expects the operating environment for Jordan's banks "to remain as challenging" this year as last, despite a general economic recovery. The ratings agency forecasts a 5 per cent rebound in GDP this year following a 5 per cent contraction in 2020.

"Profitability will be pressured but should remain adequate, despite the lower interest rate environment and lower business volumes," the ratings agency said.

"Jordanian banks will continue to generate sufficient pre-impairment operating profits to absorb increases in [credit losses] without hitting their capital."

Arab Bank, which has 600 branches across five continents, grew its loan book by 1 per cent to $26.5bn by the end of the year, while customer deposits rose by 7 per cent to $38.7bn, the lender said. Provisions held against non-performing loans continue to exceed 100 per cent and its capital adequacy ratio stands at 16.8 per cent - the minimum required for banks under Basel III regulatory standards is 8 per cent.

Arab Bank had safeguarded its "healthy liquidity and capital ratios", but at the same time was careful to support both corporate and consumer clients affected by the pandemic, chief executive Nemeh Sabbagh said.

It was "actively involved" in programmes to alleviate burdens by reducing, deferring or restructuring loan instalments, he added.