ADCB's first-quarter net profit jumps 32% on lower impairment charges

Abu Dhabi lender's income from net fees and commission also grew 10% due to a significant increase in trade finance commission

The bank's net profit for the three months ended March 31 reached Dh1.48 billion. Khushnum Bhandari / The National

Abu Dhabi Commercial Bank reported a 32 per cent rise in net profit for the first quarter of the year supported by lower impairment charges and higher fee income amid improving economic conditions in the UAE.

Net profit for the three months ended March 31 reached Dh1.48 billion ($403 million) as impairment allowances fell by 58 per cent on an annual basis to Dh294m “due to higher recoveries and improved economic conditions”, the lender said in a statement on Monday to the Abu Dhabi Securities Exchange, where its shares are traded.

Total net interest and Islamic financing income rose 1 per cent to Dh2.1bn, while income from net fees and commission grew 10 per cent to Dh487m due to a “significant increase in trade finance commission as well as higher loan processing and card related fees”, ADCB said.

“ADCB delivered a solid performance in the first quarter of 2022 reflecting improving economic conditions in the UAE, despite ongoing global uncertainty,” said Alaa Eraiqat, chief executive of ADCB.

“We are making strong progress in implementing our five-year strategy to drive further value creation through increased market share, continued de-risking of the loan portfolio and investment in new growth opportunities, with an emphasis on digital.”

The bank's results were also supported by the restructuring process completed by Abu Dhabi's NMC Group, which exited administration in March 2022.

“As a significant creditor, we have consistently been proactive in supporting the rescue and turnaround of the company. This approach has resulted in the bank receiving 37.5 per cent of a new $2.25bn facility issued by NMC HoldCo SPV,” the lender said.

Banks in the UAE are reporting higher profits as the country's economy continues to recover from the pandemic. The country's gross domestic product is expected to grow 5.7 per cent in 2022, up from 3.8 per cent in 2021, helped by an increase in oil production, Emirates NBD reported.

ADCB estimates a 5.4 per cent expansion while Japan's largest lender MUFG projects the UAE's economy to grow 4.9 per cent this year.

Lenders in the Emirates also stand to gain from a rise in interest rates that will significantly improve their bottom lines as cost of risk continues to decline amid economic growth, S&P Global Ratings said last month.

The Central Bank of the UAE increased its benchmark interest rate in March after the US Federal Reserve raised its key rates to rein in inflation, which has hit a 40-year high. The Fed is expected to raise rates five more times this year, which will be reflected in the region as well.

In the UAE, lenders' net income will increase 15 per cent and return on assets will rise 1.4 per cent for every 100 basis points increase in interest rates, S&P said in a recent report.

Despite the interest rate increase, lending growth is likely to accelerate, underpinned by the UAE’s economic growth, it added.

ADCB said net loans in the first quarter grew 4 per cent to Dh245.8bn, with new credit of Dh13bn extended in the period offset by corporate repayments.

“The loan portfolio remains well balanced, with government and public sector entities comprising 26 per cent of total outstanding loans, real estate investment accounting for 23 per cent and personal loans for 21 per cent,” the statement said.

Customer deposits increased 10 per cent to Dh261.9bn, while the bank's total assets rose 13 per cent annually in the first three months to Dh445.7bn.

ADCB Egypt also posted a 12 per cent year-on-year increase in first-quarter net profit in local currency terms after recording a 15 per cent annual rise in customer numbers, which, in turn, led to an increase in loans and deposits, the statement said.

The second biggest bank in Abu Dhabi, ADCB completed a three-way merger with Union National Bank and Al Hilal Bank last year after formalising the deal in May 2020.

In March, ADCB and First Abu Dhabi Bank, the biggest lender in the UAE by assets, denied a media report that they were in talks for a merger.