Business Today Middle East

NBAD 1H Net Profits Up 7.9% to AED 2.8 Billion

Staff writer

Alex Thursby, Group CEO of NBAD

H.E. Nasser Alsowaidi, Chairman of NBAD
H.E. Nasser Alsowaidi, Chairman of NBAD

1H 2014 Highlights

 

2Q 2014 Highlights

 

The National Bank of Abu Dhabi (NBAD) earned AED 2.829billion for the half ended30 June 2014, up 7.9% over first half of 2013.  In 2Q 2014, net profits were AED 1.424 billion, up 1.3% sequentially and 17.5%year-over-year.  Results for both periods reflect improvement inunderlying fee income and continued expense discipline.Diluted EPS was AED 0.56 for 1H 2014, up 6.8%.

The annualised return on average equity for 1H 2014was 16.0%, down from16.6% in 1H 2013.

 

H.E. Nasser Alsowaidi, Chairman of NBAD said, “In the second quarter of 2014, NBAD continued to generate solid momentum across business lines.  The Bank’s results reflect continued strength in underlying revenue and earnings growth.  As we enter the second half of 2014, NBAD will continue to focus on generating long-term growth whilst maintaining its strong balance sheet and solid capital position.”

Mr. Alex Thursby, Group Chief Executive said, “Our results in the second quarter of 2014provide further evidence that our strategy is working.  We are seeing positive underlying trends across our businesses, particularly our fee generating businesses.  I expect these trends to continue in the second half of the year and in the years to come.  Every day, we are executing against our strategy and becoming more ‘core to our chosen customers’, generating significant wins and building substantial pipelineswith clients in both the private and public sectors.  At the same time, the strength of our balance sheet remains at the top of our priority list, and we are focused on maintaining strong liquidity and capital positions.

I am very pleased with the progress we have made over the past year since I joined the bank.  We have made a number of transformational changes in our organisational structure and our strategic approach, and we are just starting to see the impact of these changes flow through in our results.  We are beginning to work as one team in major transactions and significant deals, we are establishing stronger government relations in areas such as cash management services, and we are in the process of expanding in the UK and Asia.   I expect the improvements we are beginning to see will continue to drive long-term business momentum and increases in revenue and profitability going forward.

As we enter the second half of the year, I am confident that we will continue to execute against our strategy and achieve sustainable growth over time,”Mr. Thursby concluded.

 

ECONOMIC OVERVIEW

The first half of 2014 has generally been positive and supported by strong economic data as stock markets have reached record levels. However, the Eurozone is slowly approaching worryingly low levels of inflation as producer prices fell consecutively during 2Q 2014, and ECB is considering buying assets if low inflation persists.  IMF director summarises the current situation as “Cautious Optimism” and believes the global economy will maintain its slow recovery trajectory, supported by accommodative monetary policy. Financial reforms have been initiated but not fully implemented.

While risks to growth are still present, they seem to be diminishing.  Looking forward, emerging markets are expected by many economists to register stronger growth performance in comparison to advanced economies in the coming years.  The UAE, which has the 2nd largest economy in the Arab world and 29th largest GDP in the world, recently became part of the MSCI Emerging Market Index in June 2014, and has continued to benefit from its safe haven status during periods of instability in the region.  The economy has shown signs of resilience amidst global and regional uncertainty and is beginning to generate returns from its diversification efforts.  Last year, the non-oil sector constituted 61% of nominal GDP, with strength coming from real estate and transport/communication.  Over time, the objective is to continue to increase the contribution from the non-oil sector to the overall UAE economy.

In 2014, UAE’s recovery will gain momentum throughhigher levels of investment, increasing population and a stablepolitical environment. With Expo 2020 and projects like KIZAD (Khalifa Industrial Zone Abu Dhabi) underway, the non-oil sector is expected to drive the economic growth.

 

OPERATING INCOME

Net interest income (including income from Islamic financing) (NII) was up 3.7% in 1H 2014.  In 2Q, NII was up 10.8% sequentially and up 4.6% year-over-year.  Net interest margin for the first half of 2014 was 1.98%, down 7 bps compared to first half of 2013.  Second quarter NIM was 1.97%, up 13 bps sequentially and down 9 bps year-over-year.  NIM grew sequentially as the bank optimised excess liquidity investmentsand increased its lending book.  Although NIM was up sequentially in 2Q, there still remains abundant liquidity, re-pricing of risk as the economy recovers and increased deposits placed across highly liquid but lower-yielding asset classes.

Net fees and commissions were up 26.8% in the first half of 2014, driven by increases in trade finance, retail, brokerage and lending related fees.  In 2Q, they were up 12.1% sequentially and 25.2% year-over-year.  Net FX income was down in 1H 2014 while 2Q results were up both sequentially and year-over-year.  Investment gains were up in the first half but down sequentially in 2Q.Other operating incomewas down significantly in 1H 2014 and 2Q 2014, largely due to exceptional gains from hedging strategies in 1H 2013 which did not repeat in the 1H 2014.

 

EXPENSES

Operating expenses for 1H 2014 were AED 1.664 billion, up 9.3%, reflecting continued investment in the business offset somewhat by the benefit of efficiencies generated from restructuring costs.

The cost to income ratio was 32.7% in 1H 2014, reflecting an increase from 31.2% in 1H 2013.

Our continuing investments in our franchise, network and systems, products and people are in line with our vision to be recognised as the World’s Best Arab Bank and our mission to be ‘core to our chosen customers’.

 

OPERATING PROFITS

Operating profits in the first half grew to 3.4 billion, up 2.2%.Operating profits by segment in 1H 2014were AED 2,010million (59%)in Global Wholesale Banking, AED 401million (12%) in Global Wealth and AED 858million (25%) in Global Retail and Commercial. Head Office had a net contribution of AED 155million (4.5%).

 

 

IMPAIRMENT CHARGES

Net impairment charges in the first half of 2014 were AED 465million, down AED 157 million and reflecting continued improvement in asset quality and recovery in collateral values. Specific provision charges also reflected significant improvement and were lower by AED 350 million in 1H 2014.

The Bank continues to be fully compliant with the Central Bank of UAE’s minimum requirement of 1.5% for collective provisions since the end of 2011 and ahead of the effective date (year end 2014).

Non-performing loans increased by AED 63million in 2Q to AED 6.186 billionby the end of first half of 2014.As of 30 June 2014, NPL ratio stood at 3.29% of the loan book and has gradually come down from a high of 3.55% recorded in 1Q 2013. Total provisions represented 106.1% of non-performing loans.

 

 BALANCE SHEET

 

Assets were up 6.7% year-over-year and down 3.5% sequentially,primarily due to fluctuations in liquidity.

 

Net Loans and advancesincreased 4.8% year-over-year and 1.8% sequentially, driven primarily by international loan growth.

Customer deposits grew 8.2% year-over-year and 1.0% sequentially.The Bank continues to experience a strong and encouraging buildup of CASA (Current accounts and savings deposits) with growth of 28.9% year-over-year and 1.4% sequentially.

Trade contingencies were AED 95.1 billion, up 21.8% year-over-year and flat sequentially as the Bank continues to gain momentum and execute against its growth strategy of generating more non-funded revenue from the flow of trade across the West-East corridor.

Equity, consisting of shareholders’ funds of AED 32.0 billion and GoAD Tier-I capital notes of AED 4.0 billion, was up 11.8% year-over-year and 4.1% sequentially.

Basle-II ratiosremain strong and well above the minimum 12% and 8% (Tier-I) as required by the UAE Central Bank, with a capital adequacy ratio of 16.2% and a Tier-I ratio of 14.7% as of 30June2014.As a result of regulatory changes to the treatment of risk-weighted assets, the CAR and Tier-I ratios were impacted by approximately 95bps and 85bps, respectively during the quarter.  These changes were not in effect in 1Q, and both the CAR and Tier-1 ratios experienced growth on an underlying basis during the 2nd quarter.   The Bank maintains its target Tier-1 ratio of approximately 15%.

CREDIT RATINGS

NBAD’s long term ratings are now amongst the strongest combined ratings of any global financial institution with ratings from Moody’s Aa3, Standard & Poor’s (S&P) AA-, Fitch AA-, RAM (Malaysia) AAA, R&I’s (Japan) rating of A+, and ranked among the World’s 50 Safest Banks by Global Finance.

ACCOLADES & RECENT DEVELOPMENTS

 

 

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