Dubai: Abu Dhabi Commercial Bank (ADCB) reported net profit of 1.12 billion dirhams for the first quarter of 2021, up 436% year on year and 11% sequentially (quarter to quarter).
Net interest income of 2.11 billion dirhams decreased 10% sequentially and 24% year-on-year, mainly due to the low interest rate environment and moderate macroeconomic conditions.
This was partially offset by an increase in non-interest income of 802 million dirhams, which increased 14% sequentially and 17% year-on-year.
“ADCB got off to a good start until 2021. Institutional strength has supported the resilience of our consumer and wholesale banking businesses. Merger synergies, accelerating digital transformation and incremental cost initiatives have resulted in greater efficiency across our operations, ”said Ala’a Eraiqat, Group Managing Director.
Operating expenses of 1.06 billion dirhams fell 20% year on year and 1% sequentially as the bank continued to invest in digital offerings.
Q1 2021 cost / income ratio of 36.3% improved by 180 basis points year over year, driven by aggressive realization of merger synergies, efficiency gains from transformation digital technology and an additional program of cost control measures.
The bank said it was firmly on track to surpass its cost synergy target of MAD 1 billion for 2021, after capturing cost synergies of MAD 917 million in 2020.
“We continued to focus on sustainable improvement in the efficiency rate. First quarter operating expenses were down 20% year-over-year as we realized new merger synergies, continued our program of additional cost control measures and benefited from the resulting efficiency gains. of digital transformation, ”said Deepak Khullar, Group Chief Financial Officer.
Solid balance sheet
The bank reported a strong balance sheet with strong capital and liquidity positions. Current and Savings Account (CASA) deposits increased significantly to 58 percent of total customer deposits.
CASA deposits increased by 10.5 billion dirhams in the quarter to stand at 138 billion dirhams and represented 58% of total customer deposits compared to 51% at the end of the year. Total customer deposits fell 5% quarter-on-quarter to 239 billion dirhams as of March 31, 2021, as the bank continued to replace expensive term deposits.
Net lending decreased 1% quarter on quarter to 236 billion dirhams as of March 31, 2021, mainly due to repayments from companies in the real estate sector and high provisioning levels.
The bank continued to take a cautious approach to provisioning. Net depreciation charges amounted to 704 million dirhams in Q1’21, a decrease of 25% sequentially and 63% year-on-year.
The bank reported an NPL ratio of 6.5% and a provision coverage ratio of 88%, while the coverage ratio, including collateral held, was 139% as of March 31, 2021. Including assets Net of POCI (purchase or creation of impaired credit), the NPL ratio was 8.10%.
The bank’s active engagement with clients who have benefited from TESS [Targeted Economic Support Scheme] and other postponements resulted in repayments of 6.71 billion dirhams
Capital adequacy and liquidity
The capital adequacy ratios (Basel III) and CET1 (level 1 ordinary shares) were respectively 16.64% and 13.39% (after payment of the dividend) and the liquidity coverage ratio (LCR) of 139.3% as of March 31, 2021.
Restructuring and turnarounds of NMC Health Group
The Bank announced strong restructuring momentum reflecting the potential for recovery.
Following the entry into office in 2020 of NMC Health Group (NMC) and its subsidiaries in the United Arab Emirates, the restructuring process has accelerated significantly. ADCB continues to work closely with the co-administrators and other creditors to approve and implement a restructuring plan that preserves and strengthens the value of NMC and maximizes collections.
ADCB, along with a syndicate of lenders, participated in a $ 325 million Administrative Finance Facility (AFF) to ensure NMC’s business continuity and pave the way for restructuring. Participation in AFF grants super senior status to an equivalent amount contributed to the facility, placing the bank in a strong position to maximize the potential of its collections.
NMC adopted a three-year business plan and outperformed its financial forecasts in terms of revenue and EBITDA.
To date, the bank has recorded significant provisions and outstanding interest on the NMC Group. ADCB is comfortable with these provisioning levels, which are consistent with independent assessments of value and collectability and are consistent with information on potential collections disclosed to creditors by NMC under the Entity Priority Model ( EPM).