ADIB’s Q1 net profit up 18% on lower impairment charges and higher revenue

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Islamic Bank of Abu Dhabi, the emirate’s largest Shariah-compliant lender, reported an 18% increase in net profit in the first quarter as revenue rose on cost control and continued economic recovery in the United Arab Emirates, which led to lower provisions for loan losses.

Net profit for the three-month period ending in late March rose to 715 million dirhams ($194.8 million) from a year earlier, ADIB said in a statement to the stock exchange on Wednesday. Abu Dhabi, where its shares are traded.

The bank is also extremely optimistic about double-digit profit growth for the whole of 2022 thanks to interest rate hikes, which should significantly boost results, said Mohamed Abdelbary, chief financial officer of ADIB Group. The National.

“We have a lot of tailwind in 2022,” he said.

First quarter revenue increased 6% to Dh1.41 billion year-on-year, driven by a 12% annual increase in unfunded revenue to Dh620 million and a 1% growth in revenues financed at 789 million Dh.

Provisions for bad debts decreased by 15% to 113 million dirhams, reflecting an overall improvement in economic conditions. The lender also improved provision coverage for non-performing financing, including collateral, by 9.2 percentage points to over 121%.

“We are very happy with the outcome of our performance… I think the most encouraging part is that we managed to [increase profit] increasing our revenues by 6% and reducing our costs by 2%. And the benefits of impairments are only 15%,” Abdelbary said.

“As a result, it’s a really good story to have in terms of underlying growth.”

The UAE’s economy rebounded strongly from the Covid-induced downturn last year and has continued its momentum this year despite global geopolitical headwinds and pandemic-related uncertainties. The second-largest economy in the Arab world introduced fiscal and monetary stimulus measures worth 388 billion dirhams that supported the economic rebound.

The economic stimulus includes the 50 billion dirham Targeted Economic Support (Tess) program launched by the Central Bank of the United Arab Emirates to boost liquidity in the banking and financial sector, parts of which have been extended until mid- 2022.

The country’s economy grew 3.8% last year, beating World Bank forecasts of 2.1%, Sheikh Mohammed bin Rashid, vice president and ruler of Dubai, said earlier this month -this.

Economic output in the UAE is expected to grow by 4.9% in 2022, according to Japan’s largest lender MUFG, while Emirates NBD forecasts growth of 5.7% and Commercial Bank of Abu Dhabi estimates an expansion of 5.4%, supported by a sharp rise in the price of oil. sector.

Referring to the 4.2% growth in GDP for 2022 estimated by the Central Bank of the United Arab Emirates and the International Monetary Fund, Mr. Abdelbary said that sectors such as real estate were registering strong momentum, which, at in turn, should stimulate domestic and personal financing.

ADIB’s total assets increased by 6% year-on-year to reach Dh139 billion, thanks to a 9% jump in gross funding to Dh95 billion.

The 25 basis point increase in base interest rates by the UAE central bank in March, in line with the Fed, has yet to have an effect on lending, he said. .

However, with between seven and nine interest rate hikes expected in 2022 and 2023, including one by the Fed next week, borrowing is likely to tighten.

“There’s demand and funding will happen, but as rates go up as well, you’ll start to see that some customers may be [holding] back to avail financing. It’s still early days for that, but we expect the [lending] market will probably grow by 5-7% this year,” Abdelbary said.

Calling the rate increases a “double-edged sword”, he also confirmed that for every 50 basis point increase, ADIB will benefit from Dh120 million in profitability.

“We benefit a bit more than… our competitors because our cost of funds is quite efficient and only 30 basis points. So as rates go up, we don’t pay more to fund the balance sheet,” a- he declared.

In terms of provisioning, the bank’s cost of risk is expected to average between 70 and 80 basis points this year, compared to 40 basis points in the first quarter.

“The reason is that the market is clearly opening and we are on an upward trajectory. We are seeing a lot of trading momentum and we are also exploring different avenues and that comes with more risk. The normalized level for us is probably somewhere between 70 and 80 basis points,” Abdelbary said.

Customer deposits in the first three months of the year increased by 8% per year to reach 111 billion dirhams. The lender maintained a strong capital position with a Common Equity Tier 1 capital ratio of 12.7% and a total capital adequacy ratio of 18.1%.

The lender also remains focused on cost discipline which led to a 2% annual decline in operating expenses to 577 million dirhams. The bank’s cost/income ratio improved by 3.4 percentage points to 40.9%.

The cost reduction was mainly supported by the bank’s digitization efforts, Abdelbary said.

“Our digital strategy is really paying off. We have made significant investments in our digital platforms over the past two years. When you make these investments, you are able to create efficiencies without impacting your operations or even customer experience.”

Mr. Abdelbary also confirmed that the bank is on track to launch its new asset management business in the first half of this year.

The pandemic remains the top concern this year for the CFO.

“We don’t want to see a repeat of the Covid-19 situation, because these are external factors that can really derail the recovery of the economy. I’m happy to see what we call the U-shaped recovery. .. and we don’t want anything to disturb this angle.

“I’m very optimistic for 2022. But I’m also cautious that we don’t want a similar situation to happen again where it becomes a global phenomenon,” he said.

Updated: April 27, 2022, 3:49 p.m.

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