UAE’s ADCB posts 82% drop in Q1 net profit on NMC impairment charges

Abu Dhabi Commercial Bank (ADCB) reported a Q1 net profit of Dhs209m, down nearly 82 per cent from Dhs1.152bn in the corresponding period last year.

“The year on year decrease in net profit was primarily due to higher impairment charges, in particular Dhs1.072bn on NMC Health Group, Finablr and associated companies,” the bank said in a statement while announcing its latest financial results.

Last month, Bloomberg forecasted that the bank’s $981m of exposure to troubled hospital operator NMC Health risked wiping out more than 80 per cent of the lender’s estimated profit for this year.

Read: ADCB’s $981m NMC exposure risks wiping out 80% of profit

Excluding the Dhs1.072bn impairment charges related to NMC Health Group, Finablr and associated companies, impairment charges in Q1 were 11 per cent lower quarter-on-quarter and 9 per cent higher year-on-year.

Impairment charges in the first quarter totalled Dhs1.882bn.

Total shareholders’ equity at the end of the quarter stood at Dhs49bn.

The bank distributed Dhs2.644bn in dividends to shareholders in Q1 2020.

Its net loans stood at Dhs247bn and customer deposits at Dhs263bn as of March 31, 2020.

Current account and savings account (CASA) deposits increased by Dhs6bn from the year-end, a 6 per cent increase quarter on quarter, to Dhs108bn on March 31, 2020.

CASA deposits improved to 41.1 per cent of the total customer deposits compared to 38.9 per cent as of December 31, 2019.

The bank’s total liquid assets as at the end of Q1 2020 stood at Dhs108bn.

It also reported a loan to deposit ratio of 93.8 per cent and liquidity coverage ratio (LCR) of 115.1 per cent.

The bank said  that net interest and income from Islamic financing increased 6 per cent year on year to Dhs2.789bn on account of improved cost of funds. Interest expense improved 29 per cent to Dhs1.606bn.

ADCB added that its operating profit, excluding integration costs, increased 8 per cent year to Dhs2.293bn, primarily driven by cost synergies and higher revenues.

Operating expenses excluding integration costs decreased 7 per cent to Dhs1.183 billion.

The cost-to-income ratio excluding integration costs improved to 34 per cent compared to 37.3 per cent a year earlier, an improvement of 327 basis points (3.27 per cent), supported by “the bank’s disciplined cost control and realisation of cost synergies,” it said the statement.

“Through the merger with UNB and Al Hilal Bank and the successful integration completed on April 2, ADCB proved it is capable of managing risk, systems and people through complexity to build a more powerful banking group,” said Ala’a Eraiqat, group chief executive officer and board member.

Eraiqat added that the integration of UNB and Al Hilal Bank into ADCB was completed in 11 months, less than half the initial target.

Run-rate synergy target was revised to Dhs1bn from Dhs840m. “The bank has realised Dhs185m of synergies in Q1’20 and is on track to capture 75 per cent of the revised target in 2020, with full target scheduled to be realised in 2021 as planned,” said Eraiqat.

As part of the Central Bank’s Targeted Economic Support Scheme to support banks and customers impacted by the Covid-19 pandemic, ADCB revealed that it has extended support to its customers to the amount of Dhs8.3bn under the programme by offering measures including deferment of loan instalments, reduced fees and charges, interest rate reductions and waivers, and rescheduling of working capital facilities for SMEs and corporates.

Over 32,000 customers have received deferrals under the TESS scheme.

Besides, the bank has undertaken community support initiatives including Dhs5m committed to alleviate financial burden of 35,000 healthcare workers across UAE who bank with ADCB, and Dhs4m set aside for its partnership with the Ministry of Education to provide laptops to students for distance learning.

The bank has also slated that there will be no Covid 19-related redundancies in 2020.

Read: Abu Dhabi bank ADCB says no layoffs in 2020 due to Covid-19 impact

“In the face of the unprecedented economic and social challenges presented by Covid-19, ADCB’s priority is to support customers, employees, business partners and communities above all other matters. We expect many of the learnings and experiences from these times to endure. The bank has seen a significant increase in transactions through ADCB’s online and mobile banking channels, which is likely to be sustained. We will extend the digitally-led working practices deployed during Covid-19 across our operating model to optimise productivity and further reduce our cost base,” added Eraiqat

“ADCB has proven time and again that the Bank remains steadfast in adversity. A decade ago, the bank emerged from the global economic crisis fitter and stronger, with the organisation focused on implementing best practice governance.”