Business | Banking
ADCB throws off its traditional image
Traditionally conservative and slow-moving, Abu Dhabi Commercial Bank (ADCB) in some ways reflected the culture and character of the emirate in which it was established.
- By Andrew England, Financial Times
- Published: 00:01 August 9, 2008
- Image Credit: Abdul Rahman/Gulf News
- Customers using the ATM at an ADCB kiosk in Abu Dhabi Mall. The bank has branched out this year with the $1.2 billion acquisition of a 25 per cent stake in RHB Capital, a Malaysian institution.
Traditionally conservative and slow-moving, Abu Dhabi Commercial Bank (ADCB) in some ways reflected the culture and character of the emirate in which it was established.
Yet just as Abu Dhabi is seeking to reinvent the emirate, ADCB has spent the last few years transforming itself. It now has plans stretching from the Gulf to southeast Asia.
From focusing on simple retail and the businesses of small and medium-sized companies, primarily as a UAE local bank, it has branched out this year with the $1.2 billion acquisition of a 25 per cent stake in RHB Capital, a Malaysian institution. It also received a licence for an Islamic banking subsidiary it plans to launch in the third quarter of this year.
This more active approach has helped the government-controlled bank's assets swell significantly from $7.5 billion in 2003 to about $36.5 billion now.
But it has also encountered problems along the way. ADCB is the only commercial bank in the Middle East to acknowledge publicly its total exposure of around Dh1 billion ($272 million) to the subprime crisis through investments in special investment vehicles and other instruments.
Going public
The decision to go public and provide some transparency was at odds with the secretive nature of other financial institutions in the region.
It initially set aside Dh560 million to cover the exposure and its net profits in 2007 were Dh2.085 billion, down 3 per cent compared to the previous year, in spite of the boom in Abu Dhabi. It then made another Dh70 million provision in the first quarter this year and Dh40 million in the second quarter.
"We are fully provided in one form or another for all of our exposure," says Eirvin Knox, ADCB's chief executive. "I don't expect any additional provisions in the second half."
The exposure has not affected business, he says, adding it has outsourced the management of most of that portfolio to BlackRock, the investment manager.
ADCB plans to double the size of its business in the UAE over the next three years, while developing its Islamic offerings to protect against existing clients switching to Islamic banks and to tap into the growing pool of customers who only want Sharia-compliant products. On the wholesale side, the bank is keen to make inroads into the burgeoning sukuk, or Islamic bond, market.
The target is to increase the bank's total assets to between $50 billion and $60 billion over the next three years. But it will be doing so in an competitive environment, particularly with Islamic financing, as governments, including Abu Dhabi and Dubai, launch new Islamic banks, and both international and local houses increase their presence in the region.
"There is a lot of competition in this area," Knox says. "But we believe that, as one of the largest local banks, it's essential that we develop a very strong capability."
ADCB hopes to utilise the stake in RHB Capital - Malaysia's fourth largest lender - to gain exposure to the Far East and rising trade between that region and the Gulf. Included in the deal are arrangements for the Malaysian institution to do all its business in the Middle East through ADCB, and vice versa for the Abu Dhabi group's business in south-east Asia.
ADCB will also be looking to leverage RHB Capital's experience in Islamic banking as it looks to expand in that area, Knox says.
The other piece to ADCB's strategy is to prepare the bank for any possible merger with National Bank of Abu Dhabi, a move that has been the subject of much speculation.
"I don't know if it will happen at all, but I don't see it happening in the next two or three years," Knox says. "The preparation for it, as far I'm concerned, is we have to be successful, we have to be performing extremely well financially and we need to be a position to be the lead in a merger if there was one."
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