Abu Dhabi Islamic Bank (ADIB), a leading Islamic bank in the region, reported a net profit growth of 1.7% for Q1 2019 to AED 600.3 million. Revenues increased by 5.3% to AED 1,436.6 million driven by growth in customer financing of 2.8% to AED 78.1 billion, and a 57.5% rise in investment income, which reached AED 185.3 million, in addition to an increase of 29.6% in foreign exchange income. The bank maintained a conservative approach to risk as total credit provisions reached AED 186.4 million.
.Key business highlights for Q1 2019:
- Shareholders of ADIB elected a new board of directors to serve a three-year term at the Annual General Meeting.
- Mazin Manna joined ADIB on March 10th as the newly appointed CEO to advance the bank’s strategy and lead the bank as it carries out a digital transformation strategy to enhance customers’ experience.
- ADIB maintained a healthy financing-to-deposits ratio of 77.7%.
- ADIB is also investing in upgrading its transaction banking and trade finance proposition, enhancing product capabilities and automating the financing process. This includes digitising the customer relationship management process via a new innovative system to increase efficiencies for corporates and SMEs.
Risk management
As per the newly adopted IFRS 9, customer financing that is classified under Stage 3 stands at 5.3% with these assets now totaling AED 4,340.9 million. Furthermore, total credit provisions held under IFRS 9 stood at AED 3,020.2 million at end of Q1 2019. These provisions are adequate as per the IFRS 9 requirements. In Q1 2019, ADIB took additional provisions of AED 189.3 million for customer financing.
Asset and Liability Management
ADIB recorded a healthy customer financing-to-deposits ratio of 77.7% as at 31 March 2019. The bank maintained its position as one of the liquid financial institutions in the UAE. Customer financing assets increased 2.8% year on year, while ADIB continued to focus on effective risk management.
Capital strength
Total equity (including Tier 1 capital instruments) was AED 17.2 billion at 31 March 2019. This represents an increase of 6.8% year-on-year and a 3-year compounded growth rate of 3.6%.
ADIB’s capital adequacy ratio under Basel III as at 31 March 2019 was 17.53%, while its Tier 1 capital ratio was at 16.44% and its common equity Tier 1 ratio stood at 11.70%. All capital ratios under Basel III principles are above the minimum regulatory thresholds advised by Central Bank of the UAE.
Cost management
ADIB is focused on putting in place the necessary infrastructure to support its growth strategy. Emphasis remains on recruiting and retaining top talent, building infrastructure to deliver an award-winning customer experience and investing appropriately in expanding business capabilities across all targeted customer segments. Specifically, ADIB has continued to enhance its digital capabilities across all businesses and processes. The bank is enhancing service and convenience, while building and diversifying its fee income capabilities in line with identified customer needs. ADIB is also upgrading all aspects of its infrastructure to ensure the bank functions efficiently in a stable and secure operating environment. Furthermore, in line with the Group’s ambition of being a leader in the application of regulatory and related governance best practices, ADIB has increased its investment in risk, cyber security, control and compliance capabilities. Despite of these investments, the cost-to-income remained stable at 45.2%.
Management comment
On behalf of the Board of Directors and the management team, Mr. Mazin Manna, ADIB CEO, said: “The operating performance for the first quarter of 2019 was on track with operating profit increasing 6.2%, delivering a solid return on equity of 18.3%, which is considered one of the highest in the market. This was driven by higher revenues on the back of a growth in customer financing, increased foreign exchange and investment income. We are also seeing healthy momentum in key focus areas to which we have committed significant investment, such as digital and transaction banking.
“The bank remains well-capitalised with a capital adequacy ratio under Basel III of 17.53%, while the common equity Tier 1 ratio stood at 11.70%. Our liquidity remains strong, with an advance to deposits ratio of 77.7%.
“We continue to grow customer finance on a diversified basis across all sectors with our overall finance portfolio growing 2.8% in the first quarter. We will continue to cautiously manage risk to ensure a stability in our finance portfolio. With regards to provisioning, we remained prudent in classifying our impaired portfolio and in taking provisions. As a result, we took additional provisions of AED 189.3 million for customer financing.
“We have invested heavily in new technology and embarked on a progressive digital transformation programme across the bank to help us expand and improve our service with ongoing enhancements of our digital platforms. We will be launching a number of new initiatives that can equip our customers to conduct their banking transactions in a more flexible, convenient and secure way.
“Government investment into economic diversification initiatives have helped to stimulate the UAE economy providing opportunities for ADIB to develop its corporate and retail banking businesses. While the global economic picture is uncertain, we can mitigate volatility by remaining committed to maintaining our best practice approach to risk management. There is no doubt that credit quality and capital strength lie at the core of our strategic success and in the rest of 2019 we will maintain a prudent approach commensurate with our long-term targets for return on shareholder equity.””
Gratitude
The Board of Directors and executive management wish to extend their sincere appreciation and gratitude to His Highness Sheikh Khalifa Bin Zayed Al Nahyan, the President of the UAE and Ruler of Abu Dhabi, to His Highness Sheikh Mohammed Bin Zayed Al Nahyan, Abu Dhabi Crown Prince and Deputy Supreme Commander of the UAE Armed Forces, to the Central Bank of the UAE and to the Emirates Securities and Commodities Authority, our shareholders and our clients for their continued trust in and support of ADIB, along with our staff for their dedication.
