Abu Dhabi’s ADCB shows how to use size and scale to good effect
Its bulking up of the mortgage book and gains in Egypt will convince investors
With a market capitalization of D H47.1 billion, Abu Dhabi Commercial Bank - one of the UAE’s banking behemoths - reported a record net profit of Dh2.54 billion for the first-half of 2021, a 76 per cent increase from same period last year.
The earnings are equally attractive on a quarterly basis too, with a 25 per cent increase compared to Q1-2021. The growth can be attributed to the increase in the diversified revenue stream, disciplined cost control and a prudent approach to risk management.
The bank was successful in adding 900,000 plus customers to its internet and mobile banking platform during these six months, which is, reassuring and takes it closer to being a leading digital banking platform in the region.
Consolidation wins
ADCB had merged with Union National bank and Al Hilal Bank in 2019, and it seems like the consolidation is paying off well, An impressive Dh661 million in cost synergies have been captured during the first-half of the year and on track to exceed the Dh1 billion target. Al Hilal Bank is on schedule to launch a new digital platform in the fourth quarter that will offer an extensive range of Islamic financial solutions to retail customers.
In parallel, ADCB Egypt is growing rapidly, with second quarter net profit up 218 per cent year-on-year, as net loans and deposits increased 19 and 20 per cent, respectively.
Bulking up mortgage
The Bank has decent cash on hand and is utilizing the same in acquiring the mortgage portfolio of Abu Dhabi Finance, resulting in an increase of Dh1.07 billion in the mortgage loan book. Despite the pandemic setbacks, the bank has made efforts to maintain its 3.9 per cent dividend yield.
The balance-sheet remained robust with improved asset quality metrics, a pick-up in loan growth and CASA [current and savings account] deposits continuing to rise. Rise in CASA and digital banking growth will help reduce fixed- as well as HR costs. Net loans of Dh237.8 billion were up 1 per cent sequentially and 0.5 per cent lower from year-end 2020.
The cost-to-income ratio of 34.8 per cent improved 180 basis points from a year earlier, indicating the bank is navigating the many challenges presented by COVID-19 and emerge as an entity able to withstand the macro hiccups coming its way.
ADCB’s liquidity coverage ratio (LCR) was 127.6 per cent at the close of the first-half of 2021. Capital adequacy (Basel III) and CET 1 [common equity tier 1] ratios were 16.32 per cent and 13.2 per cent respectively, indicating the bank has sufficient funds to meet any unforeseen events going forward.
Even in a low interest rate environment, ADCB was able to deliver double-digit profit growth. With economic conditions improving and the branching out into the digital space to increase market share, the bank seems positioned to deliver a new phase of growth.