<a href="https://www.thenationalnews.com/business/banking/2021/11/01/adib-seeks-ma-deals-in-uae-and-gcc-to-expand-asset-base/" target="_blank">Abu Dhabi Islamic Bank</a>, the biggest Sharia-compliant lender in the emirate, is bullish about double-digit profit growth in 2022 on the back of interest rate hikes, after it posted an 18 per cent surge in first-quarter net profit. Interest rate hikes are expected to significantly boost the bottom line this year, Mohamed Abdelbary, ADIB’s group chief financial officer, told <i>The National.</i> "We have a lot of tailwind going into 2022," he said. Net profit for the three-month period to the end of March rose to Dh715 million ($194.8m) from a year earlier, ADIB said in statement on Wednesday to the Abu Dhabi Securities Exchange, where its shares are traded. Revenue in the first quarter climbed 6 per cent to Dh1.41 billion from a year earlier, driven by a 12 per cent annual increase in non-funded income to Dh620m and a 1 per cent growth in funded income to Dh789m. Provisions for bad loans declined 15 per cent to Dh113m, reflecting an overall improvement in economic conditions. The lender also improved the provision coverage of non-performing financing, including collaterals, by 9.2 percentage points to more than 121 per cent. “We are very happy with the outcome of our performance … I think the most encouraging part is that we managed to [increase profit] by growing our revenues by 6 per cent and reducing costs by 2 per cent. And the benefits from impairments is only 15 per cent," Mr Abdelbary said. “Accordingly, it's really a good story to have in terms of underlying growth.” The UAE economy bounced back strongly from the Covid-driven slowdown last year and has continued momentum into this year despite global geopolitical headwinds and pandemic-related uncertainties. The Arab world’s second-largest economy introduced fiscal and monetary stimuluses worth Dh388bn that supported the economic rebound. The economic stimulus includes the Dh50bn Targeted Economic Support Scheme (Tess) launched by the <a href="https://www.thenationalnews.com/business/economy/2021/09/23/uae-central-bank-is-committed-to-recovery-and-a-gradual-withdrawal-of-support-measures/">Central Bank of the UAE</a> to boost liquidity in the banking and financial sector, parts of which have been extended to mid-2022. The country's economy <a href="https://www.thenationalnews.com/uae/government/2022/04/07/uaes-2021-gdp-growth-surpasses-pre-pandemic-level-sheikh-mohammed-says/">grew 3.8 per cent last year</a>, beating the World Bank's forecast of 2.1 per cent, Sheikh Mohammed bin Rashid, Vice President and Ruler of Dubai, said earlier this month. The UAE's <a href="https://www.thenationalnews.com/business/economy/2022/04/19/uae-non-oil-sectors-contribution-to-gdp-rises-to-more-than-72-in-2021/">economic output</a> is expected to grow 4.9 per cent in 2022, according to Japan's largest lender MUFG, while Emirates NBD forecasts growth of 5.7 per cent and Abu Dhabi Commercial Bank estimates a 5.4 per cent expansion, supported by a sharp rise in the oil sector. Referencing the 4.2 per cent GDP growth for 2022 estimated by the Central Bank of the UAE and the International Monetary Fund, Mr Abdelbary said sectors such as real estate are recording strong momentum, which, in turn, is expected to boost home and personal financing. ADIB’s total assets increased 6 per cent year on year to Dh139bn, driven by a 9 per cent jump in gross financing to Dh95bn. The 25 basis points increase in base interest rates by the UAE central bank in March, in line with the Fed, has not yet had an effect on lending, he said. However, with anywhere between seven and nine interest rate hikes expected in 2022 and 2023, including one by the Fed next week, borrowing is likely to tighten. “There is demand and financing will happen, but as rates also go up, you will start seeing that some clients may be [holding] back from availing financing. It's early days for that, but our expectation is that the [lending] market is probably going to grow anywhere between 5 per cent and 7 per cent this year," Mr Abdelbary said. Calling the rate increases a "double-edged sword", he also confirmed that for every 50bps increase, ADIB will benefit Dh120m in terms of profitability. "We are benefiting slightly more than ... our competition because our cost of funds is fairly efficient and only 30 basis points. So as rates go up, we do not pay more on funding the balance sheet," he said. In terms of provisioning, the cost of risk for the bank is anticipated to average 70bps to 80bps this year, compared with 40bps in the first quarter. “The reason is that clearly the market is opening up and we are on an upward trajectory. We see a lot of business momentum and we are also exploring different avenues and with that comes more risk. The normalised level for us is probably between 70 to 80 basis points," Mr Abdelbary said. Customer deposits during the first three months of the year grew 8 per cent annually to Dh111bn. The lender maintained a robust capital position with a common equity tier 1 ratio of 12.7 per cent and total capital adequacy ratio of 18.1 per cent. The lender also remains focused on cost discipline that led to a 2 per cent annual drop in operating expenses to Dh577m. The bank’s cost-to-income ratio improved 3.4 percentage points to 40.9 per cent. The reduction in costs was mainly supported by the bank's digitalisation efforts, Mr Abdelbary said. "Our digital strategy is really paying off. We have made significant investment in our digital platforms over the last two years. When you do these investments, you're able to create efficiencies without impacting your operations or even customer experience." Mr Abdelbary also confirmed that the bank is on track to launch its new asset management business in the first half of this year. The pandemic is still the main concern this year for the finance executive. "We don't want to see a repeat of the Covid-19 situation, because these are external factors which can really derail the recovery of the economy. I'm happy to see what we call the U-shaped recovery ... and we don't want anything to come and disturb that angle. "I'm very optimistic about 2022. But I'm also cautious that we don't want a repeat of a similar situation where it becomes a global phenomena," he said.