Bad loans hit ADCB profits

Abu Dhabi: Exposure to Saad and Algosaibi groups has forced Abu Dhabi Commercial Bank (ADCB) to set aside Dh810 million in provisions against bad loans in the third quarter, just Dh80 million less than provisions made in the first two quarters combined, the bank reported yesterday.

The bank reported strong operating income of Dh1.2 billion for the quarter and Dh3.6 billion in the first nine months, nine per cent higher than last year's figures in both cases.

But provisioning has trimmed its profits for the quarter to just Dh44 million, compared with Dh447 million last year, and for the first nine months to Dh701 million, compared with Dh1.6 billion last year.

"We are in discussion with these two borrowers (Saad and Algosaibi)" ADCB chief financial officer Deepak Khullar told Gulf News. "We're keeping all options open including negotiating and taking legal action."

Total provisioning against loans and investment losses for the first nine months reached Dh1.7 billion, of which Dh1.3 billion was allocated to bad loans.

The bank said it holds Dh1.9 billion in collateral against non-performing loans (NPL), which reached Dh5 billion at the end of September. Total provisions against those NPLs stand at Dh2.6 billion.

Khullar said the bank holds the collateral in the form of shares, real estate and cash. "We are working with our customers to work out these loans," said Khullar.

The bank said its exposure to Saudi Arabia's troubled groups raises the proportion of NPLs in its loan portfolio to 4.2 per cent from 2.6 per cent.

The board said it would "continue to assess our provisions in the light of developments in (NPLs) at each reporting date and will increase provisions, if required".

Investment bank Al Futtaim had projected third quarter profit of Dh231 million while EFG-Hermes expected Dh396 million.

Core performance

"Their core performance was fine and their interest income came in line with our expectations," said Al Futtaim HC Banking analyst Janany Vamadeva. "But their provisioning is what had the biggest effect on their results."

Earlier this month, ADCB revealed it is owed $609 million (Dh2.2 billion) by Saad and Algosaibi, of which $405 million (Dh1.5 billion) is attributable to the Saad Group.

The bank remains the highest exposed lender in the UAE to have reported the amounts it is owed.

News of the bank's earnings, which fell below analysts' expectations, reflected on ADCB's stock, which closed 8 per cent lower at Dh2.10 yesterday on the Abu Dhabi Securities Exchange.