ADCB reports net loss of Dh531m in second quarter 2010

Abu Dhabi: Abu Dhabi Commercial Bank (ADCB), the country's third-largest bank by assets, yesterday announced its financial results for the first half of 2010. The bank reported a net loss of Dh531 million in the three months to June 30, compared to a Dh225 million net profit in the first quarter.

The bank made a net loss of Dh306 million in the first half of the year, compared to a Dh657-million net profit in the first six months of 2009. The net loss was negatively impacted by provisions of Dh2 billion, it said, after considering the impairment on Dubai World.

Customer deposits were up 12 per cent versus a loan growth of 3 per cent over December 2009. Net interest income rose 11 per cent to Dh1.77 billion and operating income was up seven per cent to Dh2.48 billion.

Dubai World exposure

"ADCB is one of the banks with the highest exposures to Dubai World, so the results have to be read carefully," Haissam Arabi, chief executive of Gulfmena Alternative Investments, told Gulf News.

ADCB said it has an exposure of Dh6.6 billion to Dubai World which is subject to the restructuring proposal that is currently being finalised. Having revaluated the options offered over the past several months following the negotiations, the improved offer for the Dirham lenders would equate to an impairment charge for ADCB of Dh1.035 billion or 15.7 per cent of the outstanding amount which has been accounted for in full in the first half of 2010.

‘The bank continued to realise satisfactory levels of profitability; however, the enforcement of provisions and impairments, especially those associated with ADCB's exposure to Dubai World resulted in reporting a net loss," said Eisa Al Suwaidi, ADCB chairman.

The bank said in the earnings report that as per international accounting standards it is required to reflect the impairment calculated as an upfront charge to the income statement. This will be written back to the income statement progressively based upon the loan's performance, it added. Dubai World said it expects to complete its restructuring in "the coming months" after it met with creditors on July 22 as it continues to renegotiate terms on the repayment of $23.5 billion (Dh86.2 billion) of debt.

Ala'a Eraiqat, CEO and a member of the board of ADCB, said: "As a result of the current economic environment, both corporate and consumer segments continue to experience high levels of stress and therefore we have had to take significant impairments in the first half of 2010.

"We continue to reshape our business; in the middle of last year we had set out a goal to increase customer deposits and are pleased with a growth of 12 per cent over December 2009, which has reduced our loans-to-deposits ratio to 123 per cent from a high of 151 per cent in March 2009."

Total operating income for the first half of 2010 saw an increase of 7 per cent over the first half of 2009, reaching Dh2.48 billion. The growth in total operating income was mainly attributed to stronger net interest income which registered an increase of 11 per cent year on year and increased revenue generation from associates which stood at Dh194 million.