ADCB headquarters in Abu Dhabi Image Credit: Gulf News Archive

Dubai: Abu Dhabi Commercial Bank (ADCB) reported on Monday a 5 per cent decline in its net profit for the first quarter of 2019 on the back of higher cost of funds and higher operating costs.

The bank saw Dh1.15 billion in profits in the quarter, which marked its last operations as a standalone bank before merging with Union National Bank (UNB) and then acquiring Al Hilal Bank on May 1.

The earnings are below market expectations for the bank, with EFG Hermes forecasting Dh1.3 billion in profits for the quarter.

Operating expenses for the bank rose 3 per cent in the first quarter to Dh793 million, largely due to merger-related expenses and investments into technology. Other costs such as impairment allowances fell 13 per cent.

ADCB said in a statement that the integration with UNB and Al Hilal is expected to deliver annual cost synergies of around Dh615 million.

It reiterated that under the deal, Al Hilal Bank will continue to operate as a separate Islamic banking entity within the group, providing Sharia-compliant retail banking services through digital platforms. UNB, meanwhile, has already been dissolved as a legal entity and its shares were delisted off the Abu Dhabi bourse.

The newly created entity, which will retain the ADCB name, will be the UAE’s third largest bank, with Dh423 billion in assets. Its creation marked the latest in a wave of consolidations across the UAE’s banking sector, which has seen mergers concluded over the past two years as the operating environment becomes more challenging and the market overcrowded.

Alaa Eraiqat, chief executive officer of ADCB Group, earlier said scale is “vital to operate successfully … in today’s financial industry”

ADCB said the bank’s operations and processes will be integrated in phases over the next 18 to 24 months.

Eraiqat said the group is already making progress in integrating the three banks. He said the combined entity aims to deliver cost synergies and long-term growth.

On earnings, he said, “Our prudent approach to risk management has given us the flexibility to adjust to the challenges of the operating environment in an increasingly competitive market.”

During the first quarter, ADCB saw an increase in its net fees and commission income by 8 per cent as non-interest income in total gained 8 per cent to reach Dh566 million.

On the balance sheet side, net loans to customers increased by 2 per cent to Dh169 billion compared to December 2018, as deposits increased by 4 per cent to Dh184 billion.