Abu Dhabi, 28 July 2019 – Abu Dhabi Commercial Bank PJSC (“ADCB” or the “Bank”) today reported its half-year financial results for 2019 (“H1’19”). The results below are based on the six-month pro-forma financial statements for the combined entity, following the merger between ADCB and Union National Bank (UNB), and the subsequent acquisition of Al Hilal Bank on 1 May 2019.
The combination, which reinforced ADCB Group’s position as the third largest bank by assets in the UAE, has created a resilient platform for sustainable growth through greater scale.
The focus of the ADCB Group in 2019 and 2020 is to create significant value by unlocking the full potential of the combination between the three banks. The Group is driving a structured consolidation process, harmonising products, channels, policies and systems, as well as effectively implementing initiatives to achieve target cost synergies. The Bank is placing strong emphasis on cultivating a healthy organisational culture based on a robust governance framework.
This imperative process is laying the solid foundations for the enlarged ADCB Group to thrive in an increasingly competitive environment.
Integration progress fully on track, key milestones achieved within aggressive timelines
Integration is progressing rapidly and is on track for completion by the end of 2020
Established integration governance structure in line with international best practice
Cost synergies of AED 69 million have already been realised, representing 11% of the total target of AED 615 million scheduled for FY 2021
Achieved harmonisation of credit policies across the enlarged ADCB Group
Treasury functions of the three entities fully integrated, with liquidity and funding centralised
Preparations are well advanced for interoperability of ADCB and UNB branches in Q4 2019, which will be accompanied by a roll-out of the ADCB brand across all physical and digital channels
Integration of Al Hilal Bank mostly completed
Strong growth in gross interest income and double digit return on tangible equity, while net profit was impacted by an increase in cost of funds and lower non-interest income
Pro-forma half year comparison for the combined entity (H1’19 vs.H1’18)
Gross interest and Islamic financing income of AED 9.611 billion was up 11%, mainly driven by higher benchmark rates
Net interest and Islamic financing income of AED 5.219 billion was 6% lower, primarily attributable to the harmonisation of the combined entity’s liquidity management standards and intense competition on loan yields
Non-interest income of AED 1.428 billion was down 6%, mainly on account of lower net fees and commission income and lower foreign exchange income, offset by higher gains from dealing in derivatives
Operating expenses of AED 2.671 billion were up 6%, primarily attributable to integration-related expenses and continued investments in digital transformation. Excluding one-off integration-related cost of AED 87 million, operating expenses of AED 2.584 billion were up 3%. Cost to income ratio of 38.9% (excluding integration costs) compared to 35.6% in H1’18.
Impairment allowances of AED 1.174 billion were 6% lower
Net profit of AED 2.782 billion was 15% lower
Annualised return on tangible equity of 12.2% compared to 12.9% in H1’18
Net loans lower on account of corporate repayments, continued focus on growing CASA deposits
Total assets declined 2% to AED 417 billion and net loans to customers decreased 4% to AED 251 billion over 31 December 2018, primarily on account of corporate repayments
Deposits from customers decreased 4% to AED 273 billion over 31 December 2018, while CASA (current and savings account) deposits increased by AED 3.8 billion to AED 98.4 billion over 31 December 2018 and comprised 36% of total customer deposits compared to 33% as at 31 December 2018
Loan to deposit ratio of 91.9% compared to 91.2% as at 31 December 2018
Robust liquidity position, capital ratios comfortably above the minimum regulatory requirements
Capital adequacy ratio (Basel III) of 15.88% and common equity tier 1 (CET1) ratio of 12.52% compared to minimum capital requirements of 13.50% and 10.00% (including buffers) respectively prescribed by the UAE Central Bank
Liquidity coverage ratio (LCR) of 163.1% compared to a minimum ratio of 100% prescribed by the UAE Central Bank and liquidity ratio of 28.5%
Net lender of AED 23 billion in the interbank markets
Asset quality metrics remain healthy, committed to maintaining a disciplined risk profile
NPL ratio of 2.41% compared to 2.88%* as at 31 December 2018
Provision coverage ratio of 106.2% compared to 130.2%* as at 31 December 2018
Cost of risk of 0.70% compared to 0.72% as at 31 December 2018
Commenting on the results, Eissa Mohamed Al Suwaidi, Group Chairman said:
“The combination of ADCB, UNB and Al Hilal Bank, which is still at an early stage, is a significant development and landmark transaction for the UAE. The new banking group has the strength and expertise to play a central role in the country’s economic development in the years ahead. The enlarged ADCB Group has the power to invest significantly in its infrastructure to remain at the forefront of a fast-changing industry, providing the excellence and convenience that customers demand, while staying ahead of an evolving regulatory environment. The Bank is making good progress on the execution of a well-planned integration, while continuing to pursue new initiatives for growth.”
Commenting on the Bank’s performance, Ala’a Eraiqat, Group Chief Executive Officer and Board Member said:
“Following the merger, ADCB Group is pleased to report its first consolidated financial results, which reflect the scale and strength of our balance sheet. With AED 417 billion of total assets and over 1 million customers, the Group is well-positioned to thrive in a highly competitive banking industry, and drive further shareholder value through greater efficiency and new opportunities.
Our performance in the first half demonstrates the robust fundamentals of the combined entity, against a backdrop of weaker operating conditions. ADCB Group continues to deliver a double-digit return on equity, and benefits from healthy capital ratios and liquidity positions, with a liquidity coverage ratio of 163%, and a loan-to-deposit ratio of 92% as at 30 June 2019. As a Domestic Systemically Important Bank (DSIB), with a CET1 ratio of 12.52%, the Group remains well-capitalised. The Bank reported a pro-forma half-year net profit of AED 2.782 billion, compared to AED 3.259 billion in the same period 2018. While gross interest income showed a solid increase in the first half, higher cost of funds weighed on the bottom line. The Bank has made a conscious decision to exit expensive time deposits, whilst continuing to focus on growing CASA deposits, which have increased to 36% of total deposits at the end of June, from 33% at year end. As would be expected in such transactions, certain matters arose during the due diligence process. ADCB Group will carry out a thorough assessment of the probable associated impact, which will be fully quantified and reported at the year end.
The recent re-affirmation of our ratings by S&P and Fitch is testament to the well-established franchise of the combined entity, recognising the benefits of the merger to further strengthen ADCB’s business proposition and financial profile.
Following in-depth preparation, backed by our strong governance framework, the Bank is implementing a highly effective integration strategy. At this early stage in our integration journey, the Bank has already made significant progress towards accomplishing key milestones. Since the legal completion of the merger, the Bank has implemented initiatives to deliver over a third of the final cost synergy target, and our meticulous execution will enable us to realise the full potential of the transaction.
We are on track to create a strong and efficient platform for growth, which will serve our shareholders, customers and employees well in the coming years.”
ADCB Group has made strong progress on integration, making significant steps in all areas, including governance, organisational structure, customer experience, systems and culture. The Group is on track to unify the customer experience under the ADCB brand in the fourth quarter of 2019, with full systems and operational integration expected to be delivered by the fourth quarter of 2020.
The Bank has launched initiatives that will lead to cost synergies of AED 222 million per annum of the AED 615 million run rate target to be reached by 2021. Cost synergies of AED 69 million have already been realised, representing 11% of the target. One-off integration costs, at AED 87 million to date, are in line with planned expenditure of AED 800 million to complete integration.
As expected, the Group’s cost to income ratio is higher than pre-merger ADCB levels, primarily due to the higher cost to income ratios of Al Hilal Bank and Union National Bank. The Group is tightly managing its cost base, as well as pursuing merger-related synergies.
A notable achievement is the fast-tracked integration of Al Hilal Bank, which is almost complete. The Bank will operate under its own brand, focusing on providing Islamic retail banking services through digital channels. The wholesale banking portfolio has been largely migrated to the ADCB Islamic Wholesale Banking platform. In the last few months, Al Hilal Bank has revamped its mobile app to provide an enhanced customer experience and has launched a new app to fully digitise customer acquisition. The Bank is continuing its track record in developing UAE national talent, with its Emiratisation rate of over 50% among the highest in the UAE banking industry.
The Group is making strong headway in its preparations for the interoperability of ADCB and UNB branches in the fourth quarter of 2019, which will be accompanied by a roll out of the ADCB brand across physical and digital channels. This will be a key milestone in the Bank’s strategy to provide excellent customer service and a suite of high-quality products and services, unified across the enlarged customer base.
While integration work continues at a rapid pace, the Group remains focused on protecting and growing its businesses through an unwavering commitment to serving our customers.