Huge impairment allowance dents ADCB bottom line

9M profit falls by one-third to AED2.8 bn

ABU DHABI/October 28-2020: A 75 per cent surge in impairment allowance to AED3.06 billion for the nine months ending September 30, 2020 pulled down the net profit of Abu Dhabi Commercial Bank (ADCB) to AED2.80 billion from AED4.20 billion a year earlier, representing a one-third decline.

The bank explained that net profit has been impacted by the impairment charges on NMC, Finablr and associated companies, and macro-economic overlays reflecting the bank’s prudent approach to provisioning.

The net profit for the three-month period ending September 30 fell only marginally by three per cent to AED1.37 billion from AED1.41 billion, year-on-year.

At the same, sequentially, the Q3 net profit was 11 per cent higher compared with that of the immediate previous quarter at AED1.28 billion.

Operating profit flat

In fact, there has not been any change worth mentioning in the operating profit for the nine months at AED5.96 billion. While the total net interest and Islamic financing income for nine months was down by four per cent to AED7.42 billion against AED7.74 billion, the non-interest income was down by 9 per cent to AED1.99 billion compared with AED2.18 billion a year earlier.

Balance sheet

While the total assets inched up 1 per cent during the year from AED405.10 billion to AED409.26 billion, net loans and advances to customers dropped during the period under review by 2 per cent, from AED247.83 billion to AED242.89 billion. Deposits also fell marginally by 7 per cent, from AED262.09 billion to AED243.58 billion, during the said period.

While the loans to deposits ratio went up from 94.6 per cent to 99.7 per cent, the capital adequacy ratio (CAR) improved marginally by 39 basis points, from 16.30 per cent to 16.69 per cent year on year.

The bank said the results for 9 months in 2019 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 in May 2019.

 Integration-related costs

It also said the operating expenses include non-recurring expenses pertaining to integration-related costs.

The bank said it continues to adjust its operating model to account for changing customer demand and behaviour due to strong penetration of digital banking services.

The branch network has been reduced to pre-merger levels of 54 prime locations in the UAE at the end of Q3, FY20 from 73 branches in Q2, FY20 and a peak of 127 on merger with UNB in May 20194.

“One-off costs related to branch closures contributed to an 8 per cent sequential rise in operating expenses to AED 1.10 billion in Q3, FY20, while year on year costs were down 14 per cent reflecting the longer-term trend,” the bank explained further.

Deferment of instalments under TESS

ADCB said it has participated fully in the UAE Central Bank’s TESS programme to support the UAE economy, 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 September 30, 2020, ADCB had extended a cumulative total of AED 9.96 billion to support over 67,000 retail and corporate customers.

The bank also added that it has received repayments to the tune of AED 2.24 billion to date, resulting in outstanding deferrals reducing to AED 7.7 billion as at September 30, 2020.

 

 

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