Abu Dhabi UAE– Abu Dhabi Commercial Bank PJSC (“ADCB” or the “Bank”) today reported its financial results for the first half of 2020 (“H1’20”).
Strong operating performance despite macro-economic headwinds. Significant improvement in the cost to income ratio resulting from a disciplined approach to cost management and delivery of synergies
Pro-forma half year comparison H1’20 vs. H1’19 (unless otherwise stated)
- Net interest and income from Islamic financing was 2% lower at AED 5.136 billion amid a low growth environment and a contraction in the loan book on account of large corporate repayments in late June’20. Interest expense improved by 37% to AED 2.783 billion in H1’20 due to a significant improvement in the cost of funds supported by increased CASA balances, reduced reserve requirements and declining benchmark rates
- Operating profit increased 2% year on year to AED 4.066 billion, underlining the resilience of the ADCB franchise through multiple challenges including Covid-19, lower oil prices and declining benchmark rates
- Operating expenses (including integration costs) decreased 12% year on year to AED 2.351 billion in H1’20, while operating expenses in Q2’20 were down 25% year on year and 23% sequentially to AED 1.025 billion
- Cost to income ratio (including integration costs) improved to 34.9% in Q2’20 from 42.0% a year earlier, an improvement of 710 basis points (7.1%), supported by the Bank’s on-going cost initiatives and realisation of synergies related to the combination with Union National Bank (UNB) and Al Hilal Bank (AHB)
- H1’20 net profit at AED 1.436 billion and Q2’20 net profit at AED 1.227 billion, represented a return on average tangible equity of 13.2% for the quarter
- Impairment charges were AED 2.551 billion in H1’20 compared to AED 1.174 billion in H1’19. Total impairment allowances related to NMC Health Group, Finablr and associated companies stood at AED 1.231 billion at the end of H1’20, which includes AED 159 million recorded in Q2’20. The Bank continues to work closely with the joint administrators of NMC Health Group to ensure repayment of debt
Comfortable liquidity and capital positions; the Bank increased CASA deposits by AED 12 billion during H1’20
- CASA deposits increased to AED 114 billion as at 30 June 2020, up 12% from year end, and accounted for 46% of total customer deposits as at 30 June 2020 compared to 39% at year end
- Period end net loans of AED 239 billion and customer deposits of AED 250 billion as at 30 June 2020. Average loan balance of AED 248 billion and customer deposits of AED 259 billion respectively during H1’20
- Total shareholders’ equity stood at AED 53 billion as at 30 June 2020, up from AED 49 billion at the end of Q1’20, driven by an increase in the net fair value of reserves on debt instruments designated under FVTOCI over Q1’20 and retained earnings for Q2’20
- Capital adequacy (Basel III) and CET1 ratios improved to 16.31% and 12.95% respectively from 14.13% and 10.82% as at 31 March 2020
- Enhanced liquidity position, liquidity coverage ratio (LCR) improved to 129.1% from 115.1% at the end of Q1’20, remaining comfortably above the current minimum regulatory requirement of 70%
- NPL ratio of 5.16% and provision coverage ratio at 101.8% as at 30 June 2020. NPL ratio including net POCI (Purchase or originated credit impaired) assets of 6.62%
Continued realisation of synergies and launch of a series of bank-wide cost initiatives to enhance efficiencies across the ADCB Group following successful completion of integration
- Successful integration of UNB and Al Hilal Bank into the ADCB Group completed in April 2020 significantly ahead of schedule and within budget. Transfer of UNB customers to ADCB achieved smoothly despite teams working remotely due to Covid-19
- The Bank realised AED 411 million of synergies in H1’20 and is on track to capture 75% of the AED 1 billion run-rate synergy target in 2020, with the full target scheduled to be realised in 2021 as planned
- Continued focus on cost efficiencies; programme of further cost initiatives launched in Q2’20, including procurement efficiencies, process optimisation as well as reduction or elimination of discretionary spending
- One-off integration costs tapering off, at AED 22 million in Q2’20 compared to AED 143 million in Q1’20. Total integration related costs of AED 557 million (excluding capex) incurred to date remain well below the budget of AED 980 million
Sustained commitment to supporting stakeholders in response to global Covid-19 emergency; digital capabilities enhanced in line with transformation programme
- ADCB continues to support the decisive measures introduced by the Central Bank of the UAE to support the country’s economy through its “Targeted Economic Support Scheme” (TESS)
- The Bank has participated fully in TESS, offering a package that includes deferment of loan instalments, reduced fees and charges, interest rate reductions and waivers, and rescheduling of working capital facilities for SMEs and corporates. As at 30 June 2020, ADCB has extended support to over 53,000 customers in the amount of AED 8.3 billion under TESS
- Digital transformation programme gaining momentum, with 39 digital launches in H1’20, triple the H1’19 total
- Increased digital penetration, with 59% of new ADCB retail customers onboarded digitally in the first half of 2020, compared to 35% in 2019. Over 71% of ADCB’s retail customer base is registered for digital channels and our self-service rates continue to improve, with 93% of retail financial transactions carried out electronically
- Wholesale Banking Group’s market-leading digital platforms (ProCash and ProTrade) accounted for 93% of total cash management transactions and 61% of trade finance transactions in first half of 2020, increased from 91% and 48% respectively in 2019. Straight-through processing accounted for 97% of inward payments and 92% of outward payments in first half of 2020
- Rapid acceleration of digital onboarding at Al Hilal Bank. New customers joining through the Ahlan app tripled in Q2’20 from Q4’19. In the second quarter of 2020, 86% of total transactions were carried out through digital channels, while digital wallet payments have increased at an average monthly rate of 36%
H.E. Khaldoon Al Mubarak, Chairman of ADCB Group, commented: “ADCB displayed considerable resilience in a difficult operating environment in the first half of this year, as the impact of Covid-19 and low oil prices disrupted economic activity in the UAE and around the world. A robust balance sheet, as well as disciplined financial and risk management, ensured the Bank remained in a position of strength to serve the interests of its stakeholders through this challenging period.
The bank also adapted quickly to the new circumstances in order to serve its current and future client base. Having successfully completed the fast-tracked integration of Union National Bank and Al Hilal Bank in April, ADCB became the first bank in the UAE to roll out a support package for customers and the wider community in response to Covid-19. The Bank also acted quickly to modify its operations to promote the health and safety of its customers and employees, while ensuring full continuity and service excellence.
As the UAE takes thoughtful steps to return to normality, ADCB will continue to play an important role in supporting the country's economic recovery. ”
Commenting on the Bank’s performance, Ala’a Eraiqat, Group Chief Executive Officer and Board Member said: “I am pleased to report that ADCB produced a good set of financial results and a robust operating performance, especially given the operational and economic challenges raised by the Covid-19 global pandemic.
Through this period, we have maintained a singular focus on delivering continuous, high quality service to customers, at select branches and through our popular digital platforms, which have seen a sharp rise in usage over the last four months.
In the second quarter, the Bank reported a net profit of AED 1.227 billion, which translates to a strong return on average tangible equity of 13.2%. The underlying business has remained stable, with operating profit before impairment allowances rising 2% in the first half of 2020. This was predominantly driven by our sustained focus on managing the cost base, which has reduced operating expenses and helped to decrease cost of funds.
The cost-to-income ratio has consistently improved over the last four consecutive quarters to reach 34.9% in the second quarter of 2020, 710 basis points lower than a year earlier. By conducting a rigorous and highly effective integration process following the merger with UNB and Al Hilal Bank, ADCB has delivered substantial efficiencies, with AED 411 million of cost synergies realised in the first half of 2020. We remain on track to achieve AED 750 million of synergies this year and the full run-rate target of AED 1 billion in 2021.
CASA deposits have also continued to increase in a highly competitive environment and now account for 46% of total customer deposits.
Impairment charges in the second quarter were significantly lower than in the first quarter of the year, when ADCB booked significant provisions for its exposure to NMC Health Group, Finablr and related companies.
The Bank continues to take a proactive approach to resolving this issue and is pursuing a range of avenues and legal routes to ensure repayment of debt. Given the current information on revenue generation, cash flows and asset values received from the joint administrators and our advisers, we believe the provisions of AED 1.231 billion taken to date for the NMC Health Group and Finablr are sufficient. In close collaboration with the administrators, ADCB continues to monitor developments closely and will make appropriate adjustments if required.
ADCB remains in a robust financial position, with key capital ratios improved in the second quarter and comfortably within regulatory requirements, while the Bank also supplemented its liquidity levels. The CET 1 ratio stood at 12.95% and the liquidity coverage ratio was at 129.1% as at 30 June 2020. These solid fundamentals are reflected in ADCB’s high investment-grade credit ratings.
As demonstrated by these results, our strategy and continued emphasis on prudent risk management is building further resilience and protecting shareholder value.”
¹ The results for H1’19 are based on the pro forma financial statements for the combined entity, following the merger between ADCB and
Union National Bank (UNB) and the subsequent acquisition of Al Hilal Bank on 1 May 2019.
 Includes profit distribution on Islamic financing.
 Before impairment allowances