National Bank of Abu Dhabi (NBAD) reported net profits of AED 1.271 billion for 1Q’16, up 23% sequentially (q-o-q), largely as a result of improvements in underlying fee income and F/X gains combined with a reduction in provisions. Net profits were down 11% year-over-year (y-o-y), reflecting lower investment gains and higher provisions, despite growth in strategic businesses and stronger net interest income.
Expenses were down 3% sequentially and slightly lower y-o-y as the Bank continued to tightly control expenses whilst also investing in talent, operations and infrastructure.
Loans were AED 200 billion, down 3% q-o-q and flat y-o-y. Results included further growth in retail lending in line with Pillar 1 of our strategy, offset by the decline in our loan portfolio, which resulted from a decision to switch deployment of core liquidity from short term trade finance assets into other higher yielding liquid alternatives, including investments, as part of our ongoing balance sheet optimisation initiatives.
The Bank continued to build its strong liquidity position and maintain a robust capital position with a Tier-1 ratio of 15.1% as well as strong credit ratings.
Return on equity (RoE) of 12.0% in 1Q’16 was impacted by challenging market conditions and lower non-core revenues.
H.E. Nasser Alsowaidi, Chairman of NBAD, said: “The steady growth of NBAD’s core business is a sign of strength in this challenging global economic environment. NBAD’s robust balance sheet and healthy liquidity position continue to insulate the bank from external shocks. The bank is on the right track and has a long-term strategy in place to continue delivering sustainable growth.
NBAD recognises that it has a responsibility to deliver value for not only our customers and shareholders but also the UAE as a whole. That is why I am pleased to see the bank continuing to support the people, small and medium sized businesses, and institutions that have made the UAE what it is today by providing them with effective and responsible banking services.”
Alex Thursby, Group Chief Executive, said: “In the first quarter of 2016, NBAD’s core lines of business activity generated top- and bottom-line growth. Our domestic business has extended its leading position in the UAE by bringing more products to more customers – both on the retail and commercial sides of the business. At the same time, our global wholesale bank has generated enhanced revenue from flow products as well as increased income from its debt origination and distribution platform.
Forecasts for global growth have been revised downwards in recent months, with the IMF currently expecting to see 3.2% GDP growth in 2016. This has primarily been a result of advanced economies being unable to emerge from a prolonged period of low-to-moderate growth, China facing some headwinds in its transition into a consumer-driven economy, as well as lower commodity prices adversely impacting emerging economies.In the first quarter of 2016, the GCC has continued to feel the effects of the global slowdown, with low oil prices weighing on the region. That said, there are signs of greater stability, and although oil price recovery could be protracted, it does seem increasingly likely the low point in prices for this cycle has passed.
During this period of low oil prices, the UAE has benefited from its diversified economy. Furthermore, the UAE has been the regional leader in the implementation of measures, such as subsidy reductions, which have insulated the economy as a whole.
Other GCC nations have subsequently taken similar steps to better control their fiscal deficits and to diversify revenue sources. The region, with overall low levels of public debt and a high level of foreign assets, is well positioned to come through the transition successfully.
GLOBAL WHOLESALE BANKING
Global Wholesale Banking revenues grew 6% sequentially over 4Q’15 driven by consistent performance in strategic focus areas of flow, trade and value-added products, with strong momentum in fees. Costs were controlled following investments made in 2015 towards strengthening the Bank’s product infrastructure and hiring talent. The business has maintained its strong liquidity position and has continued to benefit from local, regional and international funding sources.
Global Markets revenue during 1Q’16 were up 12% sequentially, but lower by 19% versus Q1’15 due to higher investment income during the prior year period. During the quarter, the business generated strong performance, particularly in flow trading, driven by the emerging market desk on GCC and MENA FX & Rates trading. This more than offset lower revenues from Global Market’s investment book on significantly lower liquidations as well as negative mark-to-market impact due to heightened market volatility across asset classes. Global Markets sales continued to maintain revenue momentum with a focus on providing quality yield solutions for financial institutions, non-banking financial institutions and corporate customers as well as increasing flows across locations.
Global Banking continues to deliver best-in-class financing solutions, advisory and transaction banking through an originate-to-distribute model. Revenues grew 4% sequentially and 6% over 1Q’15 in overall terms but core revenue growth through Global Transaction Banking and Debt Origination & Distribution was stronger at 21% (y-o-y) and 48% (y-o-y) respectively, thus demonstrating a well-diversified revenue base. NBAD continues to strengthen its cash management proposition both locally and regionally. To ensure better alignment and a greater level of service to clients, the Custody business was brought under Global Transaction Banking.
Highlights from 1Q’16 include:
GLOBAL RETAIL & COMMERCIAL
Global Retail and Commercial continued its trend of strong growth in revenues in 1Q’16 to record a double-digit y-o-y growth of 19% (up 1% on a sequential basis), driven mainly by the increase in retail product sales and market share in the UAE along with the increase in commercial trade business. Operating expenses were well-controlled and showed a slight drop compared to Q1'15, driven by the optimisation of the Bank’s branch network and prudent cost control policy. Liquidity ratios continued to be strong.
Retail lending grew 20% (22% in the UAE and faster than the market), in line with Pillar 1 of the strategy, backed by strong sales performance and customer acquisition, particularly in personal loans, mortgages and credit cards. Robust growth in the Commercial trade business drove a 70% y-o-y increase in revenues from trade, contributing to higher fees and FX income.
Highlights from 1Q’16 include:
Global Wealth revenue was down 7% sequentially and 11% y-o-y to AED 222 million in 1Q’16 due to continued challenging market conditions. As investors have become more risk averse, negative sentiment has resulted in declines in trading volumes. The correction in MENA regional financial markets has acted as a significant headwind, particularly within the securities and asset management businesses. Nevertheless, the Global Private Banking business continues to focus on our strategy to be the best private bank for the Arab world and is building momentum with strong client acquisition and an increasingly diverse client base.
Highlights from 1Q’16 include:
Net interest income (including income from Islamic financing) (NII) was AED 1.831 billion in 1Q’16, down 1% q-o-q and up 2% Y-o-Y. Net interest income improved year-over-year in the first quarter, reflecting the following factors: the decision to switch deployment of core liquidity from short term trade finance assets into better yielding alternatives, including investments; new lending to customers transacted at higher yields in our Retail and Commercial banking business; and a reduction in our commercial surplus and general tightening in the market in Wholesale banking.
Net fees and commissions for the quarter were AED 571 million, up 6% sequentially and 10% y-o-y. Lending fees increased as a result of retail lending growth, up 23% q-o-q and 27% y-o-y. Sequentially, income on investments and derivatives growth in Global Markets was offset by lower trade finance and credit card fees. Year-over-year increases in trade finance and credit card fees were partially offset by declines in brokerage and asset management fees due to challenging market conditions.
FX and investment income was AED 240 million in 1Q’16, up 43% sequentially, reflecting strong growth in the bank’s customer sales franchise as well as higher FX and trading gains. Year-over-year FX and investment income were down 32%, primarily as a result of opportunistic gains taken on the sale of investment securities in 1Q’15 which did not repeat in 2016.
Other operating income of AED 9 million in 1Q’16 was relatively flat with AED 8 million in 4Q’15, and down from AED 26 million in 1Q’15. The y-o-y decrease was due primarily to one-time gains related to the sale of fixed assets in 1Q’15.
Operating expenses for the quarter were AED 1.008 billion, down 3% sequentially and marginally lower y-o-y reflecting continued expense discipline. Our investment focus is on hiring world-class talent, expanding client service capabilities and enhancing the IT infrastructure of the business, and the impact of these investments is evident in revenue growth in key targeted areas, including Global Wholesale flow products, Retail & Commercial and International. The cost to income ratio of 38.0% for 1Q’16 is down from 40.6% in 4Q’15 and slightly up y-o-y from 37.8%.
Net impairment charges in 1Q’16 were AED 295 million, down 32% q-o-q and up 73% y-o-y as impairments reflect prudent provisioning in line with guidance and reflective of the challenging environment in which we are currently operating.
Cost of risk (CoR) (annualised) was 57bps in 1Q’16 compared with 82bps in 4Q’15 and 33bps in 1Q’15 as the Bank manages through a more challenging credit environment.
Collective provisions continue to be maintained above the Central Bank of UAE’s minimum requirement of 1.5%.
Non-performing loans, net of interest in suspense, reduced by AED 54 million at end of 1Q’16 to AED 5.792 billion. As of 31 March 2016, NPL ratio stood at 2.81% of the gross loan book.
Total provisions were AED 6.361 billion and represented 110% of non-performing loans.
Group Chief Executive