ADCB remains upbeat despite a year of provisioning
Abu Dhabi Commercial Bank (ADCB) reported a net loss of Dh513 million in 2009 against a net income of Dh1.358 billion in 2008. Chief Executive Officer Alaa Eraiqat attributed the loss to a surge in the bank's bad debt provisions, describing 2009 as a 'year of provisioning'. Yet, Eraiqat appeared optimistic about the bank's performance in 2010 although he believes there will be challenges.
In an interview with Emirates Business, Eraiqat said ADCB – one of the largest banks in the region – will pursue its focus on infrastructure, SMEs and consumer banking, but ruled out involvement in new investments abroad. He said the UAE banking sector had shown great resilience against the global crisis but declined to comment on recent reports about a planned merger between ADCB and Union National Bank.
2009 was a year of provisioning for ADCB and this largely affected profits. What happened? Are you satisfied with this performance?
It was indeed the year of provisioning. We have taken Dh3.86bn of provisions in 2009, resulted in net loss at the bottom line level. These provisions are mainly (Dh2.2bn) to address our legacy international exposure, both loans and investments. The remaining is to bring our provisioning levels to appropriately prudent levels for a bank of our size. It is also worth mentioning that we adopt the most prudent levels of deciding on NPL's [90 days] and also a very conservative strategy for deciding on provisions. The prevailing uncertainty in the financial markets demands such measures .
Our core operations and franchise demonstrates excellent positioning and all measurable ratios indicate an extremely healthy and solid performance. We are well-capitalised at 17.5 per cent capital adequacy, and genuinely liquid. Most importantly our cost management helped us remain flat without any forced attrition of staff.
Now that ADCB appears to be in a stronger position with all this provision build-up, how do you look at 2010?
Obviously every new financial year comes with its own challenges, from history we learn that we cannot let our guard down and should continue to be prepared for the worse but wish for the best. It is too early to judge given the number of variables at play in the market but I am personally optimistic about the market as a whole.
As for ADCB, what I can assure investors is the continued core business growth and improvements.
What sectors would be the focus of ADCB in the coming period?
Our areas of focus remain our areas of strength, hence consumer banking and SME is in the centre of it all. We will continue our involvement with the public sector and its infrastructure projects… what we will not do is to be involved in overseas investments or loans.
How do you evaluate the performance of the UAE banking sector in 2009? Are we now fully past the global crisis?
The banking sector have shown [as per declared results so far] outstanding resilience to the crisis, very impressive bottom line results and prudent risk management. Obviously measures vary from bank to bank and are dependent on the construct of their balance sheet.
The true impression can be formed after all banks publish their balance sheets and a chance is given to analysts to review.
The measures taken by regulators and government bodies are highly commendable and have addressed the key issues in a focused and effective manner. This is something that makes all of us very proud and positive going forward.
The Central Bank is imposing strict rules regarding the banks' capital and financial position… do you think this might trigger any mergers? And do you believe there is a need for more bank mergers in the UAE?
Mergers, if they occur, should have a number of compelling reasons. Capital and financial ratios are one of such reasons, but the bigger picture is the overall economy and its strategy going forward. Bigger banks do not necessarily mean better ratios and there are many conflicting views and thoughts on the issue of bank mergers globally. I would leave speculations on this to the economists and specialised analysts. Such decisions at the end of the day are for the shareholders who can decide. I personally enjoy the diversity of UAE market that helps the advancement of the banking as an industry.
Finally, there were rumours about a possible merger involving some local banks, including ADCB?
No comments on rumours or speculations from my end.
PROFILE: Alaa Eraiqat CEO, Abu Dhabi Commercial Bank
Educated in the US and the UK, Eraiqat has 18 years of core banking experience and restructuring project management. He has held senior positions at Citibank and Standard Chartered Bank, among others. He joined ADCB in January 2004, holding the post of deputy CEO for the past two years. Eraiqat is also a member on the board of directors of Abu Dhabi National Hotels, Gulf Capital, the MasterCard Asia-Pacific, Middle East & Africa Regional Advisory Board, Mubadala Infrastructure Partners Advisory Board and Real Estate Investment Committee of the Abu Dhabi Chamber of Commerce.
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