Dubai

Abu Dhabi Commercial Bank (ADCB) reported on Thursday a 2 per cent year-on-year decline in its net profit for the first half of 2017 primarily due to higher impairment charges and lower non-interest income.

The bank’s profits reached Dh2.1 billion in the first six months. The figure puts net profit in the second quarter of 2017 at Dh1 billion, down 10 per cent compared to the Dh1.12 billion recorded in the second quarter of 2016.

Impairment costs in the first half of this year reached Dh814 million, according to the bank’s financial statement, marking a 16 per cent jump over the Dh703 million recorded in the same period last year. Impairment cost in the second quarter alone were Dh427 million, up 22 per cent year-on-year.

“While the bank’s fundamentals and underlying performance remained healthy, our bottom line was impacted by the adverse market conditions, which resulted in higher impairment charges and a lower non-interest income in the second quarter,” Alaa Eraiqat, chief executive officer and board member at ADCB, said in a statement.

He added: “The bank delivered a good set of results, including a return on equity of 15.5 per cent for the first half of 2017. This demonstrates the benefits of our diversified and robust business model against a backdrop of challenging market conditions.”

ADCB’s net loans and advances rose six per cent year-on-year to reach Dh164 billion at the end of June 2017. Meanwhile, deposits from customers went up 9 per cent year-on-year to reach Dh161.8 billion at the end of the first half.

The decline in profits over the past six months at one of Abu Dhabi’s largest banks comes in contrast to strong performance recorded by Dubai’s banks.

Leading banks such as Emirates NBD and Dubai Islamic Bank reported higher profits year-on-year supported by lower provisions, lower expenses and higher net interest income.

“If you look at second-quarter numbers such as loan growth and deposit growth, they were weak. Dubai banks did much better than Abu Dhabi banks. The government there [in Abu Dhabi] is still not spending, but I believe that should change.

“The IMF [International Monetary Fund] said that the government is squeezing too much, so I think we might see [some improvement] in Abu Dhabi in the second half of the year,” said Marwan Haddad, lead portfolio manager at Al Mal Capital.

He added that he expected to see pickup in Abu Dhabi’s economic activity in 2018, and that would help the banking sector see improved performance.

ADCB’s operating expenses were nearly flat year-on-year, inching up one per cent in the first half of 2017 to reach Dh1.4 billion.

In its management report, ADCB said second-quarter trading income was impacted by “unrealised FX translation losses, reflective of turbulent markets.”

“This resulted in a non-interest income of Dh1.032 billion in [the first half of 2017], a decrease of 11 per cent year-on-year,” the report stated.