Dubai: In 2022, the UAE’s new wave of standalone digital banks went into launch phase, whether that’s Zand, Wio, or Al Maryah Community Bank. They marked out specific categories of potential clients that they felt would opt for digital-only banking services.
Amidst all that action with neo-banks, UAE’s legacy banks were doing their own stuff with digital targeted at clients who were early adopters and those who were making the switch, but in more incremental terms. Among them is Abu Dhabi mega-bank ADIB, which has been placing more of its traditional services onto digital interfaces. And scoring.
Abu Dhabi Islamic Bank’s 2022 financials attest to the gains made, even in an environment where the bank is spending more to get all its systems, people and processes up to speed. In an interview, Mohamed Abdelbary, Group CFO at ADIB, makes a point about the costs and more.
Does ADIB’s sustained emphasis on expanding digital banking come with a higher cost? Do you reckon this can be sustained?
If the fundamentals are right, there should be no need to worry. We are always saying we are investing in a digital transformation, even in times when people were cutting back on costs. We will be agile enough to see this through.
The strategy remains the same. Once you have everything in place, then we will start seeing the desired outcomes. It can already be seen in the 2022 numbers. Net profit up by 55 per cent year-on-year; revenues by 23 per cent, the capital is strong, and ADIB has the best return on equity in the market.
But what about costs?
Capex is there on digital. The cost had gone up 6 per cent after we had seen a reduction in 2020-21. We had always been open with the market that the next boost to our income has to come from productivity gains - and not from cutting costs anymore.
Yes, there is some uptick in our costs – but I always say, it’s a good cost to have.
Does this emphasis on digital require a mindset change internally?
As long as you are good ability behind the push into digital. Our digital pick up rate is strong, with 99 per cent of all our transfers getting done this way. We have employed a good team, and that’s helping our internal processes enormously.
A sizeable percentage of our sales are happening digitally, and what’s more we are able to pick up market share without having to put in too much underlying costs behind it. That’s a big win for us.
None of this digital rush will come with ADIB lowering its physical network, right?
ADIB has always been cautious about the branch network, even at a time when the digital pick up was not happening too fast. We still have 60 plus branches, and at this stage have no plans to change. We still have a client base who would require the traditional ways of engagement.
At any point, would ADIB think of separating its digital banking unit? To stand on its own?
Today, it’s working well as integrated within our core operations. At this stage, we don’t see any need to change that. So, no plans to separate.
2023 started off with everyone talking up a ‘risk-off’ investment strategy. Will it be yours too?
We are always calculating the underlying cost of risk in the portfolio we carry. These are at normalised levels amidst a lot of turbulence.
At the end of the day, it is about how your portfolio is growing and the cost of risk percentage you want to apply. For us, it’s running at 50 basis point or so in terms of the cost of risk we apply. As our portfolio grows, that’s what we will continue to apply.
Also, a lot depends on the portfolio growth in the next one year. We are very comfortable with the existing portfolio. There is a lot of collateral that’s been built in, which gives us comfort before it reaches a point of concern.
ADIB, analysts say, is traditional on the investment side. Does that tag describe your philosophy?
I won’t call us conservative - call us realistic. We have a good appetite for investments with the right degrees of risk. The most important part is the bank is highly profitable.
The return on equity is 21.4 per cent, and I have not seen anything like that in the market. We are able to meet our dividend promises, meet need of client, shareholders and employees. The equation is working…
