Group CFO's Message

Group CFO's Message

The Bank delivered strong financial results in 2016, reporting a net profit of AED 4.157 billion and a return on equity of 15.7%.


Upon reflection, there is much to be pleased about in our performance. We achieved solid growth year on year in a challenging operating environment, whilst continuing to manage our business efficiently.

Once again we posted record revenues, building on years of remarkable performance, even as the economy presented us with a slowdown. It is easy for a bank, when a tough year comes, to cut back on investments and expenditures, to put necessary projects on hold, even to let people go, just to hit the next target. That is not the kind of bank we are. We do not manage for the next quarter; but rather take the long view. We are here for the UAE and our shareholders, and continue to invest in our franchise and our shared future.

Tightened liquidity and turbulent markets certainly have impacted the industry, yet the Bank's underlying performance and fundamentals remain strong. ADCB's resilient balance sheet registered healthy growth. We continue to grow our businesses and to be a partner for growth in this market. All the while, we have not wavered from our focus on delivering a superior customer experience.

Built for Resilience and Sustainable Growth

The Bank's agility and strong underlying performance are a direct result of the strategies we put in place coming out of the global recession of 2008.

We remain steadfastly UAE focused. We manage our balance sheet for liquidity and granular growth. We contain expenses whilst continuing to make prudent investments. We keep a sharp eye on asset quality and risk management. We empower our people to drive success. Perhaps most importantly, we have elevated customer-centricity and are focused on delivering an unmatched experience for every customer of the Bank.

ADCB is a very agile bank when it comes to making decisions and launching products to both retail and business customers.

We also remain very disciplined in our approach to growth, and believe that our resistance to calls to grow more quickly has served and will continue to serve our stakeholders well. Today, we continue to emphasise liquidity over profitability and prioritise loans of high credit quality that can be written at acceptable margins. We manage our balance sheet conservatively, and our loans and advances are diversified across all economic sectors to minimize risk. We remain selective about the sectors to which we lend and have grown even more prudent about our provisioning. We also continue to diversify our revenue stream, emphasising non-interest income generation. Our noninterest income of AED 2.294 billion was up 12% over 2015, and comprised 27% of operating income compared to 25% in 2015.

This responsible approach, a strong franchise and stable financial footing have positioned us well in the current environment. The results for 2016 bear this out.

Built for Consistently Strong Performance

The Bank's balance sheet remains strong. We grew net loans 8%; Wholesale Banking loans were up 11%, and Consumer Banking loans were up 5%. Loans to banks decreased 52% year on year to AED 3.6 billion, due to a conscious decision to reduce this portfolio. The Bank's capital ratios remain robust, with a capital adequacy ratio of 18.92%, and a Tier I ratio of 15.66% at year-end. We are committed to protecting the long-term financial strength of the Bank in our pursuit of sustainable growth. We maintain a well diversified funding base. In line with best practices of banking, ADCB has adopted the Liquidity Coverage Ratio (LCR) standards issued by Basel and the UAE Central Bank. Subsequent to a rigorous examination, ADCB was amongst the first banks approved by the UAE Central Bank to adopt the LCR standards. At the end of 2016, ADCB's LCR stood at 129% compared to a minimum ratio of 70% prescribed by the UAE Central Bank. ADCB was a net lender of AED 22 billion in the interbank markets as at 31 December 2016, and our investment portfolio increased 58% over 2015 to AED 33 billion, providing a further source of liquidity for the Bank. In a tight liquidity environment, our liquidity ratio increased from 25.8% in 2015 to 29.2% in 2016, whilst our loan to deposit ratio remained stable at 101.9%.

Our asset quality metrics remain healthy, with a non-performing loan ratio of 2.7% and a provision coverage ratio of 129.9% as at year end, reflecting our strong risk management culture.

What these numbers reflect is that ADCB is built to perform in any environment.

The market continues to be tough on two fronts. First, liquidity in the marketplace is tight. As a result, our cost of funds increased to 1.33% from 0.92% in 2015. Second, we have taken a higher level of impairments on our lending, as we have seen a higher level of defaults in the marketplace. This has raised our cost of risk to 0.83% from 0.29% in 2015. This rise is simply a function of the current market environment. Such rises in impairment allowances are in keeping with our prudent and conservative approach, and a reflection of the discipline we exact on our lending practices.

The small to medium size enterprise sector has been hit hard, but that does not mean it is not bankable. We have not retreated nor retrenched. Instead, we resolutely continue to fund, finance and work with our SME customers, who meet our standards, and stand by them in challenging times. In 2016, this sector continued to be a net contributor to our liability book.

Given the macro conditions and our discipline, it is not surprising that we experienced reduced profitability in 2016. But this in no way has limited our ability to perform like the leader we built the Bank to be.

Built for Continuing Success

This operating performance demonstrates the strength and resilience of our business model and strategic pillars as we move forward.

As a highly disciplined bank, we continue to take measures to address the current economic realities, with rigorous risk management and cost containment. At the same time, we continue to invest in digitisation to create a more differentiated banking experience. Today, more than 90% of our retail financial transactions are done electronically, enabling us to better serve customers, whilst moderating costs.

A differentiated customer experience is key to our ongoing success.

We have a very productive relationship with the Board. Recently, the Board reaffirmed its support for our strategy and in particular our focus on the UAE and, in fact, directed us to continue investing in service excellence as a key differentiator for the Bank in this market. The Board concurs that significant investment in our digital strategy today is foundational to sustaining and extending our current advantage in customer service going forward.

Simply put, we will continue to make it simpler and easier for customers to do business with us. That is where we are making most of our investments — so that the customer never feels inconvenienced.

A strength of the Bank is that we have held course and stay true to our strategy. We expect the current economic environment to be temporary. However long it may last, we have always said we will ride the fortunes of the UAE economy, both up and down, because we believe in this market long term.

UAE is well-positioned for sustained growth, and so is your Bank. We have a strong franchise and continue to deliver enduring value for all our stakeholders. Our credit ratings from Standard & Poor's, Fitch and RAM remain world-class at A, A+ and AAA, respectively, and Standard & Poor's upgraded our stand-alone credit profile in 2016. The Bank remains on a very solid footing in terms of its capital base and liquidity metrics, and in its compliance with Basel III and UAE regulatory requirements as they evolve. Most importantly, ADCB is still growing and taking market share.

We approach 2017 and beyond with confidence. Our strategic framework creates a clear path forward, resilience and agility in a rapidly changing world, and we remain committed in our pursuit of measured and sustainable growth.

Deepak Khullar
Group Chief Financial Officer