• January 31, 2017
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Abu Dhabi Commercial Bank reports full year 2016 net profit of AED4.157 billion

Financial highlights (31 December 2016)

• Strong underlying performance and efficiently managed cost base resulting in higher revenues

(2016 vs. 2015)

• Operating profit before impairment allowances of AED 5.700 billion was up 5%
• Operating income of AED 8.495 billion was up 3%; total net interest income of AED 6.201 billion was stable year on year, impacted by higher funding costs. This was partially offset by non-interest income of AED 2.294 billion, up 12% over 2015
• Net fee income of AED 1.472 billion was up 2%, mainly attributable to a healthy increase in net retail banking fees of AED 706 million, up 10% year on year
• Operating expenses of AED 2.796 billion were 1% lower, driven by the Bank’s disciplined cost management strategy whilst continuing to grow revenues
• Cost to income ratio for 2016 was 32.9%, compared to 34.2% in 2015
• Cost of funds for 2016 was 1.33% compared to 0.92% in 2015, driven by higher Eibor and higher premium paid on time deposits, reflective of the tighter liquidity environment
• Net profit of AED 4.157 billion was 16% lower impacted by higher cost of funds and impairment allowances, whilst the Bank maintained a healthy ROAE (return on average equity) of 15.7% and ROAA (return on average assets) of 1.65%

Focused on sustainable growth

• Total assets grew 13% to AED 258 billion and net loans to customers increased 8% to AED 158 billion
• Deposits from customers increased 8% to AED 155 billion, low cost current and savings account (CASA) deposits comprised 42% of total customer deposits

Healthy asset quality metrics

• NPL and provision coverage ratios improved to 2.7% and 129.9% respectively from 3.0% and 128.5% in 2015
• Impairment allowances charged for the year were AED 1.521 billion compared to 502 million in 2015, reflecting our prudent approach to challenging market conditions
• Collective impairment allowance balance was 1.89% of credit risk weighted assets, well above the minimum 1.5% stipulated by the UAE Central Bank

Robust capital position and continued emphasis on liquidity

• Capital adequacy ratio was 18.92% and Tier I ratio was 15.66%
• Liquidity coverage ratio (LCR) was 129% and loan to deposit (LTD) ratio was 101.9% unchanged from 2015

As a result of the Bank’s strong performance in 2016, the Board of Directors has recommended a cash dividend of AED 0.40 per share, translating to a pay out of AED 2.079 billion, equivalent to 50% of net profit.

Commenting on the results, Eissa Mohamed Al Suwaidi, Chairman said:

“The Bank has delivered another year of strong performance particularly in light of the challenges faced by the low oil price environment, tightened liquidity and volatile markets which have impacted the industry. However, the Bank’s underlying performance and fundamentals remain strong. We have a clear and focused strategy, and we continue to execute against it. In September 2016, the Board reviewed and confirmed the Bank’s strategy. This strategy was devised to build a robust and resilient leader in the UAE financial sector and has proven to be highly effective in that regard.

The Board also confirmed the importance of continuing investment in creating a superior and differentiated customer experience, through digitisation initiatives and sustained focus on customer service. The Bank has built up a distinct advantage in customer service and extending this advantage is critical to future success.

We expect the heightened economic challenges to persist in 2017, however the Bank’s proven strategy, commitment to service excellence and well-established governance standards will continue to serve shareholders well. The UAE economy remains diversified, strong and well positioned in the regional and global economy, and we are confident in its future.

The Bank remains committed to contributing to the development of the UAE banking sector and the country, and on behalf of the Board, I thank His Highness Sheikh Khalifa Bin Zayed Al Nahyan, the UAE President and Ruler of Abu Dhabi, His Highness Sheikh Mohamed Bin Zayed Al Nahyan, Abu Dhabi Crown Prince and Deputy Supreme Commander of the UAE Armed Forces, His Highness Sheikh Mansour Bin Zayed Al Nahyan, Deputy Prime Minister and Minister of Presidential Affairs, and the UAE Central Bank for their continued support for ADCB and the future development of the UAE economy. I also extend my gratitude and appreciation of the Board to our shareholders, our valued customers, and the ADCB executive management team and employees for their continued dedication and commitment.”

Commenting on the Bank’s performance, Ala’a Eraiqat, Member of the Board and Group Chief Executive Officer said:

Leading through resilience

“The bank delivered strong financial results in 2016, reporting an operating profit before impairment allowances of AED 5.700 billion, up 5% year on year. Our gross interest income was up 12% over 2015, and our yields improved to 4.20% in 2016. This was achieved in the absence of significant recoveries and interest in suspense reversals recorded in 2015, which were not repeated in 2016. Our non-interest income comprised 27% of our operating income compared to 25% in 2015, a reflection of our efforts to diversify our revenue stream. The Bank also continued to perform exceptionally well in other key indicators, delivering a strong return on average equity of 15.7%, and an industry leading capital adequacy ratio of 18.92%.

Given the headwinds, 2016 was a successful year for the Bank. We continued to grow our revenues and managed our businesses efficiently. Operating expenses were 1% lower, whilst operating income of AED 8.495 billion was up 3% year on year. This resulted in an improved cost to income ratio of 32.9% in 2016, an improvement of 130 basis points year on year. Yet our profitability declined. The lingering effects of low oil prices on economic activity resulted in a tightened liquidity environment that has driven cost of funds and impairment allowances higher across the banking sector. Our resilience stems in part from our stringent standards to risk management. Our prudent approach to loan provisioning has resulted in our cost of risk rising from 29 bps to 83 bps year on year. We maintain healthy asset quality indicators, a non-performing loan ratio of 2.7% and provision coverage ratio of 129.9%. This is a reflection of our disciplined risk management culture.

This operating performance demonstrates the strength and resilience of our business model and strategic pillars, which was also viewed positively by global monitors of our industry. In June 2016, S&P upgraded ADCB’s stand alone credit profile (SACP) to bbb+ driven by the Bank’s strengthening business position. Also in 2016, we were ranked amongst the top five banks in the Middle East and Africa in Global Finance Magazine’s rankings of the world’s safest banks.”

Built for Sustainable Growth

“We are committed to protecting the long term financial strength of the Bank in our pursuit of sustainable growth. We manage our balance sheet for liquidity and maintain a well-diversified funding base. In line with best practices of banking, ADCB has adopted the liquidity coverage ratio standard issued by Basel and the UAE Central Bank. Subsequent to a rigorous examination, ADCB was amongst the first banks approved by the UAE Central Bank to adopt the LCR standards. The LCR at the end of 2016 stood at 129% as compared to a minimum ratio of 70% prescribed by UAE Central Bank.

We continue to focus on granular growth opportunities in the UAE to build our balance sheet. Year on year, loans to customers increased 8% in our core businesses and core geography, with Islamic assets up 30% over 2015. Our investment portfolio increased 58% over 2015 to AED 33 billion, mainly driven by an increase in UAE government bonds, whilst the Bank continued to be a net lender of AED 22 billion in the interbank markets as at 31 December 2016.

Our customer deposits also increased 8% year on year, above the UAE industry average of 6%. Low cost CASA deposits increased 3% year on year to AED 65 billion and comprised 42% of our total customer deposits. Our leading award winning cash management platform recognised as one of the best in the UAE, continues to be a key driver of our CASA growth. Recently, Euromoney awarded ADCB global “Five Star” status for cash management based on extensive survey of client feedback. This is an accolade fewer than ten banks worldwide have earned in 2016, a remarkable achievement for a UAE bank and a testament to our platform, digital capabilities, transactional businesses and to our employees who deliver such exceptional service.”

Putting Service First

“A superior customer experience is key to our ongoing success. Therefore, we continue to invest in digitisation and innovation to create a more differentiated banking experience and to elevate our customer service. The Bank unveiled its first digital centre at the end of 2016, with two other digital centres on the way. Today, more than 90% of retail financial transactions are done electronically, enabling us to better serve our customers and to manage our costs effectively.

A little over two years ago, we launched Net Promoter Score (NPS), which measures our customers’ propensity to recommend ADCB to friends and family. This has given us a quantifiable means of assessing and improving our effectiveness in serving customers. Our 2016 NPS indicates that we have retained #1 ranking against our peer group in almost all segments. This confirms that we are putting the customer at the center of everything we do at ADCB. We are relentless in the pursuit of service excellence, and our efforts are being rewarded by our loyal customers.”

Leading Through Social Engagement

“On the social front, through our partnership with the Emirates Foundation we are working to raise the level of financial literacy throughout the UAE especially with young adults. This is a first-of-its-kind financial literacy programme in the region, combining an international best practices framework with in-branch counseling. We are very pleased to be able to play a role in encouraging the widespread adoption of sound financial management practices across the UAE.”

Looking forward

“The Bank remains on solid footing in terms of its capital base and liquidity metrics, and in its compliance with Basel III and UAE regulatory requirements as they evolve. Most importantly, ADCB is still growing and taking market share. We approach 2017 and beyond with confidence. Our strategic framework creates a clear direction, resilience and agility in a rapidly changing world, and we remain committed in our pursuit of measured and sustainable growth.”

Re-disseminated by The Asian Banker