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Abu Dhabi Commercial Bank (ADCB) reported a net profit of Dh1.12 billion for the first quarter of 2021. Image Credit: Ahmed Ramzan/Gulf News

Dubai: Abu Dhabi Commercial Bank (ADCB) reported a net profit of Dh1.12 billion for the first quarter of 2021, up 436 per cent year on year and 11 per cent sequentially (quarter on quarter) .

Net interest income of Dh2.11 billion was 10 per cent lower sequentially and 24 per cent lower year on year mainly on account of the low interest rate environment and subdued macro-economic conditions.

This was partially offset by higher non-interest income of Dh802 million, which was up 14 per cent sequentially and 17 per cent year on year.

“ADCB had a strong start to 2021. The institutional strength has underpinned the resilience of our consumer and wholesale banking businesses. Merger synergies, acceleration of digital transformation and additional cost initiatives have resulted in greater efficiency across our operations,’ said Ala’a Eraiqat, Group Chief Executive Officer.

Lower costs

Operating expenses of Dh1.06 billion decreased 20 per cent year on year and 1 per cent sequentially as the bank continued to invest in digital offerings.

Cost to income ratio of 36.3 per cent in Q1 2021 improved 180 basis points from a year earlier, driven by aggressive realisation of merger synergies, efficiencies derived from digital transformation and an additional programme of cost control measures.

The bank said it is firmly on track to exceed its Dh1 billion cost synergy target for 2021, having captured cost synergies of Dh917 million in 2020.

“We have continued to focus on delivering a sustained improvement in the efficiency ratio. Operating expenses in the first quarter were 20 per cent lower year on year, as we realised further merger synergies, continued our programme of additional cost control measures and benefited from efficiencies stemming from digital transformation,” said Deepak Khullar, Group Chief Financial Officer.

Strong balance sheet

The bank reported strong balance sheet with robust capital and liquidity positions. Current and savings account (CASA) deposits increased significantly to 58 per cent of total customer deposits.

CASA deposits increased by Dh10.5 billion during the quarter to Dh138 billion and accounted for 58 per cent of total customer deposits compared to 51 per cent at year end. Total customer deposits decreased 5 per cent quarter on quarter to Dh239 billion as at 31 March 2021, as the bank continued to replace expensive time deposits.

Net loans decreased 1 per cent quarter on quarter to Dh236 billion as at 31 March 2021, resulting primarily from corporate repayments in the real estate sector as well as significant provisioning levels.

Asset quality

The bank continued to take a prudent approach to provisioning. Net impairment charges were Dh704 million in Q1’21, a decrease of 25 per cent sequentially and 63 per cent lower year on year.

The bank reported NPL ratio of 6.5 per cent and provision coverage ratio of 88 per cent while the coverage ratio including collateral held was 139 per cent as at 31 March 2021. Including net POCI (purchase or originated credit impaired) assets, the NPL ratio was 8.10 per cent.

The bank’s active engagement with customers who have benefitted from TESS [Targeted Economic Support Scheme] and other deferrals has resulted in repayments of Dh6.71billion

Capital adequacy and liquidity

Capital adequacy (Basel III) and CET1 (common equity tier 1) ratios were 16.64 per cent and 13.39 per cent (post dividend payment) respectively and liquidity coverage ratio (LCR) of 139.3 per cent as at 31 March 2021.

NMC Health Group restructuring and recoveries
Bank reported strong momentum in restructuring reflecting potential for recoveries.
Following the entry into administration in 2020 of NMC Health Group (NMC) and its UAE subsidiaries, the restructuring process has gathered strong momentum. ADCB continues to work closely with the joint administrators and other creditors to approve and implement a restructuring plan that preserves and builds value at NMC and maximises recoveries.
ADCB, together with a syndicate of lenders, participated in a $325 million Administration Funding Facility (AFF) to ensure operational continuity of NMC and to pave the way for restructuring. Participation in the AFF confers super senior status to an equivalent amount contributed to the facility, placing the bank in a strong position to maximise the potential for its recoveries.
NMC has adopted a three-year business plan and has been outperforming its financial projections on revenue and EBITDA metrics.
To date, the bank has recorded significant provisions and interest in suspense on the NMC Group. ADCB is comfortable with these provisioning levels, which are in line with independent assessments on value and recoverability and are consistent with information on potential recoveries disclosed to creditors by NMC under the Entity Priority Model (EPM).