Having reported a record quarterly profit in the third quarter ended the 30th September 2011, Abu Dhabi Islamic Bank (ADIB) appears to be growing from strength to strength. Although the bank maintains a cautionary stance for next year due to prevailing global economic uncertainty, it remains confident that it has achieved a clear growth trajectory and is even preparing to expand to the UK.
Although some concerns over its balance sheet health still linger, the bank has been able to build up other areas of its business to offset weaknesses while moving to plug the leaks where it remains vulnerable. It may not be smooth sailing for ADIB just yet, but it looks like it may have weathered the worst of the choppy seas.
Watershed results
In the third quarter of this year, ADIB reported a net profit of AED319.1 million (US$86.87 million) against a net profit of AED314.53 million (US$85.63 million) in the previous corresponding period. For the nine months to the 30th September, net profit rose 3.2% year-on-year to AED938.9 million (US$255.61 million).
Its record profit was attributed to a AED1.09 billion (US$296.74 million) profit from its core banking business in the nine-month period. However, it was also impacted by the Central Bank of the UAE’s recently released guidelines on retail lending, which pinched its asset base to AED74.16 billion (US$20.19 billion) as at the 30th September from AED75.28 billion (US$20.49 billion) as at the 31st December 2010, while income from financing fell to AED866.54 million (US$235.91 million) in the third quarter from AED874.41 million (US$238.05 million) a year earlier.
In a statement, the bank noted that the subdued growth in assets and personal banking fee income is expected to continue into 2012, although this could be offset by its transaction and investment banking franchises, which recorded a 6% year-on-year growth to AED118.92 million (US$32.38 million) in the third quarter.
Beltone Financial Research commented that: “Asset quality was stable, which was the best sign during the quarter, as NPLs had moved sharply upwards over the second quarter of 2011. For the financial year 2011, we leave room in the fourth quarter for the higher provisioning we didn’t see in the third quarter, particularly because during the last quarter the account audits occur with the central bank, which can necessitate higher impairments.”
Moody’s also noted in a recent report that ADIB’s asset quality is constrained by its exposure to the real estate sector, causing the bank’s asset quality to lag behind that of its Abu Dhabi-based peers.
Feet on the ground
To its credit, ADIB appears fully cognizant of possible lean times ahead and that it remains weighed down by its real estate investments. “We do not expect this period of economic uncertainty to end soon and remain concerned about global growth rates and the impact on our markets. The UAE may face another down cycle in the credit environment triggered by the prevailing negative global sentiment and its impact on the entire region. The main area of concern is the concentration of non-performing real estate assets, which require a lot more time to recover,” said Tirad Mahmoud, its CEO, in the bank’s financial statement notes.
However, he noted that despite those realities, the bank remains on a clear growth trajectory and continues to focus on building its business in the UAE and abroad as opportunities arise.
UK foray
One of those opportunities appears to be a move into the UK market – certainly a bold measure given the country’s sluggish economy and exposure to the financial crisis and where the success of Islamic banks has been mixed.
However, the bank seems content to hedge its bets, noting that while the end of the current financial crisis is still some way off, it continues to look for opportunities to grow its business while cautiously expanding into new segments, products and markets. It is this considered approach that the bank credits for its watershed profits in the third quarter and it is apparently with this same stance that it is undertaking its entry into the UK.
The bank is currently awaiting its UK banking license and is expected to establish its first branch in the country in November this year. According to Phillip Manning, CEO of ADIB UK, the bank will commence by offering current accounts, with an eye on expanding into areas including the mortgage business. However, he added that the bank will assess demand for mortgages before it sets up a division for the business.
With the worst likely behind it and a clear bearing of its current position, ADIB seems set on seeking out new business amid prevailing uncertainties. Despite the possibility of dampened growth next year, the bank’s prudent initiatives may help it scale greater heights in the future. — EB