FAB's half-year net profit soars 50% on lower provisions and interest income boost

Net impairment charges for loan losses dropped to $272m at the end of June

First Abu Dhabi Bank, the largest bank in the UAE, said its core business has improved significantly during the first half of this year. Chris Whiteoak / The National

First Abu Dhabi Bank, the UAE’s largest lender by assets, said half-year net income soared 50 per cent as the bank’s core business improved significantly amid a rise in interest income and a fall in provisions for bad loans.

Net profit attributable to shareholders in the first six months of the year surged to Dh8 billion ($2.2bn), the lender said in a statement on Thursday to the Abu Dhabi Securities Exchange, where its shares are traded.

The rise in income was supported by a 19 per cent increase in net interest income to Dh6.52bn.

Net impairment charges for loan losses fell to Dh1bn ($272m), down 9 per cent from the first six months of 2021, reflecting the continued economic recovery in the UAE, the lender said.

"Despite heightened global market volatility, our core businesses maintained solid growth momentum reflecting healthy pipeline execution across our diversified franchise and our ongoing strategic focus on deepening client relationships,” Hana Al Rostamani, FAB's group chief executive, said.

Looking ahead, however, the lender recognises a "more challenging global economic outlook" marked by turbulent market conditions and inflationary pressures.

"As we enter the second half of the year, we remain committed to our clients and stakeholders and confident in our ability to deliver sustainable shareholder returns as we pursue our growth and transformation plans,” Ms Al Rostamani said.

The global economy has weakened in the second quarter of this year as rising inflation has forced most central banks to aggressively raise interest rates. Market volatility amid the ongoing conflict in Ukraine, supply chain disruptions, the slowing Chinese economy and high energy prices have added to global headwinds.

Earlier this week, the International Monetary Fund lowered its growth forecast for the global economy for the second time this year. The IMF now projects global growth at 3.2 per cent in 2022 and 2.9 per cent in 2023, revising it down 0.4 and 0.7 percentage points from its April forecast, respectively.

The fund gave a warning that if further risks materialise and inflation continues to rise, global growth could decline to about 2.6 per cent and 2 per cent in 2022 and 2023, respectively, which would put growth in the bottom 10 per cent of outcomes since 1970.

However, the UAE economy, which bounced back strongly in 2021 from the Covid-19 pandemic-driven slowdown, has continued the growth momentum this year.

The country is set to post its strongest annual gross domestic product expansion this year since 2011 after it grew by 8.2 per cent in the first three months of 2022 on higher oil prices and measures that stemmed the impact of the pandemic, according to the Central Bank of the UAE.

The economy remains resilient amid relatively lower inflation as key economic sectors including real estate and tourism continue to rebound.

FAB has upgraded its UAE GDP growth forecast to 5.7 per cent in 2022 and 4.4 per cent in 2023 from its earlier estimate of 4.8 per cent and 4 per cent, respectively. It expects inflation in the country to reach around 5 per cent.

"Despite ongoing global uncertainty, we maintain a positive outlook for UAE economic growth this year and beyond," the bank said.

Loans, advances and Islamic financing climbed to Dh459bn, a 12 per cent rise since the end of December last year. Customer deposits increased 5 per cent during the period to Dh648bn.

"Almost Dh50bn net incremental lending was extended by FAB year-to-date, which is a record for the group for any half-year period," Ms Al Rostamani said.

FAB's assets rose 4 per cent in the first six months to Dh1.04 trillion at the end of June. The lender's liquidity coverage ratio came in at 135 per cent, underlining its strong liquidity position.

The bank is optimistic about mid-to-high single-digit growth this year, supported by the UAE's economic rebound and higher oil prices, although the Ukraine conflict is a concern, James Burdett, group chief financial officer, said in February.

"In the last quarter, all our core businesses delivered top line growth sequentially, led by a double-digit growth in investment banking and corporate and commercial banking, which is a strong result in the context of adverse global market conditions," Mr Burdett said on Thursday.

"This was helped by strong volumes, early benefits from rising interest rates and healthy client activity."

The lender, which opened a representative office in Iraq in March as part of its geographical expansion, in April withdrew its non-binding offer to acquire a majority stake in Egypt's largest investment bank, EFG Hermes.