First Abu Dhabi Bank is second in advances behind ENBD
Despite being the largest bank by far in the country, FAB is not the largest lender, as it plays second fiddle to Emirates NBD on advances as per the latest balance sheet released by the bank for the first half of 2020 (FY20).
While Emirates NBD with an asset base of AED694.283 billion ($189.18 billion) as of June end, 2020, held total advances (including Islamic finance) to the tune of AED442.909 billion, FAB’s advances stood at only AED384.578 billion despite a much larger asset base of AED865.990 billion ($236 billion).
This shows that loans and advances constituted just 44.41 per cent of FAB’s total assets, whereas for Emirates NBD, its advances and Islamic financing accounted for 63.79 per cent of its total assets – a far cry from that of FAB.
It may be worth mentioning at this juncture that FAB’s capital base (equity capital) has declined to AED98.030 billion as of June 30, 2020, from AED108.037 billion six months ago.
In the case of ADCB, the third largest bank in the UAE, loans at AED239.288 billion constituted 58.90 per cent of its total assets at AED406.235 billion as of June end- still much higher than that of FAB.
The markedly low advances-total assets ratio for FAB in relation with other UAE banks need not be viewed as an aberration or one-off incident in its balance sheet this time.
Advances-total assets ratio declining
The ratio of ‘advances to total assets’, or the relevance of advances in FAB balance sheet, has been declining steadily, at least since 2016 – ever since the merger of NBAD and FGB, the two major banks from Abu Dhabi.
An analysis of the balance sheets of the past four years shows that FAB’s advances in 2016 were AED334 billion against total assets to the tune of AED649 billion, which worked out a decent ratio of about 52 per cent.
However, this ratio (or the loan component in assets) has been on a diminution with 2017 showing a lower ratio of 49 per cent and that of 2018 logging further down at 47 per cent.
Nonetheless, the 2019 ratio did belie the trend with the ratio reversing to 49.63 per cent before it could make a sharper U-Turn in the next 6 months to register the lowest loans-assets ratio of 44.41 per cent as of June end, 2020 as discussed earlier.
And the bank has been paying a price too for this in the form of a steady fall in its net interest income (NII) which has been on a decline in the said period as it declined from AED13.580 billion in 2016 to AED12.775 billion in 2019 in line with the journey of its loan book.
But having said that, FAB has earned a healthy net interest income (NII) for the latest 6-month-period ending June 30, 2020 (H1) at AED6.523 billion compared with Emirates NBD that earned an NII of AED4.368 billion, albeit from a larger loan book.
A close look at the latest balance sheet reveals that FAB expanded its asset base from AED821.968 billion to AED865.990 billion during the first half of FY20, growing by more than AED44 billion.
But instead of those funds going into lending as is conventional with most other banks, FAB routed a big chunk of its newly raised funds to Central banks, especially those outside the UAE.
FAB which is owned a little over 70 per cent between Mubadala Investment Company and Abu Dhabi Investment Council (ADIC) – both Abu Dhabi’s investment arms, has operations spread over five continents and hence would inevitably maintain regulatory cash reserves with the respective central banks of the countries where it has operations.
During the first six months of the current year (H1), the cash and balances with Central Banks soared from AED169.702 billion to AED199 billion – by close to AED30 billion, during which time, the assets grew by AED44 billion, whereas the loan book shrank by AED23.5 billion.