ADCB

CFO’s
Message

ADCB has once again delivered solid income and profit growth in line with the Bank’s well-defined long-term strategy. ADCB’s 2013 record results demonstrate that our strategy is working.

2013 was our fourth consecutive year of strong financial results. The Bank’s performance during this period reflects the emphasis we place on sustainable growth and the focus we have on fundamental banking principles. Our balance sheet is managed conservatively, and loans and advances are diversified across all economic sectors to minimise risk. We are resilient, control costs efficiently and are always looking for ways to build capital for our businesses, improve shareholder returns and offer the best products and services to our customers.

ADCB’s net profit in 2013 was AED 3,620 mn, up 29%, and our basic earnings per share was AED 0.59 for 2013, up 31% from 2012. The Bank’s operating profit before impairment allowances increased to AED 4,961 mn in 2013, up 10%, from 2012. The 4% increase in net interest and Islamic financing income to AED 5,429 mn and 36% increase in non-interest income to AED 1,890 mn reflected the diversity of our business model.

In 2013, the Bank’s retail portfolio grew across all products by AED 3,900 mn, up 23%, in an extremely competitive environment. Our customer deposits grew to AED 115,428 mn, up 6%, in 2013. We also continued to focus on maintaining a strong and conservatively positioned balance sheet driven by our strategy, which resulted in a stable loans-to-deposit ratio of 114% at the end of 2013.

Credit quality continued to improve during 2013, as the overall financial condition of businesses and consumers strengthened and the economic sectors affected by the recession improved. Non-performing loan ratio was 4.1% compared to 5.4% a year earlier, and provision coverage improved from 82.2% to 109.7%. Past due but not impaired loans showed a significant decline of 50% in 2013 and total impairment charges were 22% lower year-on-year in 2013.

As at 31 December 2013, the Bank’s total equity was AED 24,821 mn, and total Tier 1 capital was AED 24,408 mn under Basel II, or 16.62% of total risk-weighted assets. Liquidity remained strong with a liquidity ratio of 22.8%, and we were a net lender of AED 8.5 bn in the interbank markets at the end of 2013.

Our business is growing, and the progress we have made gives us confidence as we move ahead. Every year, ADCB finds better ways of delivering the right products and services to our customers and attractive returns to our shareholders.

Deepak Khullar
Group Chief Financial Officer

Financial Highlights

Operational
Review

ADCB’s strong financial performance reinforces its position as one of the UAE’s leading banks.

ADCB operates through Consumer Banking, Wholesale Banking, and Treasury & Investments Groups. Through these groups, ADCB offers a wide range of products and services to its customers — retail banking, wealth management, private banking, corporate banking, commercial banking, cash management, investment banking, corporate finance, foreign exchange, interest rate and currency derivatives, Islamic products, and project finance.

Consumer Banking (CBG)

Consumer Banking Group provides a comprehensive suite of conventional and shari‘ah-compliant products and services across all segments of retail clients. Designed to cater to every client need, the wide range of products and services includes deposit and transactional accounts, personal and auto loans, mortgages, credit cards, third-party insurance and investment products. In addition, CBG offers wealth management and brokerage services, offshore banking services, and investment products, as well as financial support to businesses of Ultra High Net Worth individuals through its Private Accounts unit.

CBG serves its customers through one of the broadest banking platforms in the UAE, including 50 branches, 298 ATMs, a 24/7 contact centre, ADCB online banking and mobile applications. ADCB has adopted a multi-channel distribution approach supported by a focus on convenience, availability and self service to enhance customer satisfaction. In 2013, over 90% of the Bank’s retail financial transactions were conducted by customers via various automated channels, and over 70% of our customers now access bank services through their smart phones and mobile devices. At the Bank’s call centre, first-contact resolution continued to remain stable at 85%.

In 2013, Retail Banking reported an increase in income despite an intensely competitive market environment. Strong growth, primarily in personal loans and credit card acquisitions, helped offset the impact of margin erosions and an overall decline in portfolio yields. The focus on the mass affluent market was a driver of profitability for 2013, with significant growth in wealth management fee income. A marked improvement in cost of funds was achieved through a shift in the liability book composition towards low-cost deposits and current and savings accounts. Customers of ADCB’s Islamic Banking services responded positively to the Bank’s comprehensive range of shari’ah-compliant products and services, which allow families to stay true to their values and traditions.

ADCB Islamic Banking was a prime driver of growth, contributing 52% of retail liabilities and 31% of retail assets sourced during the year.

Growth initiatives were balanced with a disciplined risk-management culture. Delinquencies and loss rates reduced across all retail products and were at their lowest levels in several years, reflecting improvements in credit quality across the retail banking franchise.

In the last quarter of 2013, ADCB launched a comprehensive rebranding initiative. The effort encompassed all aspects of the brand, including an updated identity, a redesigned branch experience and a new campaign designed to enhance the Bank’s customer-centric focus and its commitment to serving the unique banking needs of ambitious people. The new branches, to be rolled out over the next two years, have been designed to be unlike any other bank branch in the UAE. Made to be more intuitive, accessible and welcoming, the design uses bespoke lighting, textures and finishes to put customers’ needs centre-stage.

We continue to face increasing competition in the rapidly evolving consumer banking industry. Our strength lies in our focus on customer-centricity and our cross-selling efforts, which along with untapped market segments form a key part of our growth strategy going forward.

Wholesale Banking Group (WBG)

Wholesale Banking Group provides ADCB’s corporate, business banking, government, public enterprises and institutional client coverage, as well as cash management, trade finance, financial institutions, corporate finance and investment banking services. WBG is also responsible for ADCB’s Indian branches.

Wholesale Banking’s financial results for 2013 reflected strong underlying performance across all of its business and product areas. In particular, solid growth was achieved through the significant inroads the group made in the small and medium-size enterprise (SME), mid-corporate and government markets.

Net loan growth was AED 8 bn, up 13% over 2012, and WBG reported a strong growth in funded assets and unfunded trade assets despite a large repayment from a customer in Q3 2013. CASA deposits grew 30% year-on-year, reflecting the ongoing resonance of our market-leading product, channel and service propositions. During 2013, Wholesale Banking won more than 150 new client mandates. This success was reflected in ADCB’s position as the No. 1 Cash Management Bank in the UAE, as voted for by clients in the Euromoney Global Cash Management survey.

From a strategic perspective, 2013 represented a continuation of the five-year strategy agreed for Wholesale Banking through 2016. The core focus on the UAE market and expansion segments such as SME, Mid-Corporate and Government–related business remains unchanged.

The SME business segment achieved steady expansion with increases in lending, trade and liability market share. The refreshed Mid-Corporate segment grew rapidly to build market share and drive earnings across product lines, mainly through new-to-bank clients. The Large Corporate business maintained its strong market position, and the Government area grew its client base, particularly in financing, investment and transaction banking. Financial Institutions grew selectively and continued to lay the groundwork for building greater nonlending earnings with a focus on trade finance.

In products areas, Cash Management leveraged its market leadership during the year to increase its product and channel capabilities. In 2013, ADCB Cash Management became the first provider in the UAE to deliver B2B direct-debit functionality and increased leadership in the real-estate escrow management market. Trade Finance continued to improve product and service offerings, while a re-engineering of business processes resulted in faster response times and better client service. Investment Banking focused on enhancing niche capabilities for key clients, as well as building advisory relationships and market share in syndications, and won two prestigious international awards for transactions delivered in the UAE and Regional markets.

During 2014, Wholesale Banking plans to drive further growth and cross-sell across its businesses, particularly in the Business Banking, Mid-Corporate and Government segments. Further focus will also be given to increase business activity in the UAE–India corridor by expanding capabilities in Indian branches. In addition, the foundations have been put in place for increases in activity in Institutional and Corporate clients, while mandates are being secured from a highly encouraging cash management, trade finance and investment banking pipeline. WBG will further re-engineer business processes and recruit new talent to enhance client service. Throughout the year, Wholesale Banking Group confidently expects to continue to deliver improvements to the quality of its overall loan portfolio.

Treasury & Investments

Treasury & Investments Group manages ADCB’s treasury operations and investment portfolio, as well as its interest rate, currency and commodity derivatives business. Treasury & Investments also acts as the gateway for all financial market transactions between ADCB and most regional central banks and sovereign wealth funds.

By working in close collaboration with its customers and investing in staff, products and technology, Treasury & Investments performed well in 2013, posting net profit growth of 48% year-on-year.

On a continuing basis, Treasury has worked on improving the liquidity and capital position of the Bank. The Investment Portfolio run by Treasury as part of ADCB’s liquid asset management strategy has performed well during the year.

2013 was a very active year in the capital markets space for ADCB. With issuances in excess of AED 9 bn, the Bank tapped into the capital markets three times during the year. For the first time in the UAE, ADCB simultaneously launched a five-year senior tranche of USD 750 mn and 10-year Tier-2 notes of USD 750 mn. Both issuances had a very favourable response from the markets. These launches were followed by a new Tier-2 issuance, both in CHF and USD denominations, as well as a very successful FRN issue. Using the proceeds from the Tier-2 issuances, ADCB repaid the Government Tier-2 loan provided by the UAE Ministry of Finance to all local banks at the height of the global financial crisis in 2009.

Volume in the Foreign Exchange increased by 55% in 2013 over the prior year. Treasury initiatives in launching new products resulted in execution of the first shari’ah-compliant Islamic swap (Profit swap) in the UAE market along with the Derivative Desk launching several new products for trading in futures for precious metals and equity indices.

On the technology front, Treasury has successfully upgraded its IT platforms for seamless deal processing and limits-monitoring. Treasury has also launched an e-commerce project linking multi-bank portals and third-party vendors to allow ADCB customers to perform transactions electronically on best-in-market pricing. The e-commerce initiative will help ADCB increase its customer base and enhance its quality of services.

Group Business Services (GBS)

Group Business Services provides the foundation on which ADCB’s business performance and customer service are built. Through the efforts of 824 employees, GBS comprises a number of key ‘run the bank’ and ‘change the bank’ support functions that keep ADCB operational and agile. GBS support functions include Group Strategy and Change, Technology Services, Group Operations, Corporate Services, and Workplace Protection Services.

GBS is responsible for managing ADCB’s ATM network, providing teller services to the Bank’s customers, keeping its technology systems operating, helping to protect stakeholders from fraud, processing billions of dirhams worth of payments, and providing comprehensive online and mobile services.

In 2013, GBS processed AED 635 bn in payments for ADCB and over 12 mn transactions.

The group facilitated more than 13 mn online logins in 2013, and registered 50,000 mobile app users. It managed more than 15 mn ATM/CDM transactions on ADCB’s 298 ATMs.

In addition to focusing on agility, operational risk management, and service, GBS focuses on maintaining ADCB’s cost-to-income ratio through continuous efficiency and productivity improvements across all support services.

GBS manages the Bank’s capital investment portfolio and is involved in a number of programmes aimed at ensuring that ADCB maintains its market-leading position well into the future. Some of ADCB’s key investment initiatives include the New Branch Expansion Programme, the Technology Transformation Programme and the Treasury & Investments Re-platforming Initiative. In 2014, GBS will launch Itmam Services — ADCB’s new shared-services subsidiary, a number of mobile platform innovations, and a first-of-its-kind UAE national job-creation solution.

Human Resources

ADCB’s people are the key to our continued success. Our highly trained, motivated and well-integrated workforce delivers the Bank’s business results, achieves strategic goals and provides outstanding customer service.

As a major financial institution and employer, we value our thousands of employees, and we are committed to helping them fulfil their professional ambitions, just as our employees are committed to helping the Bank achieve its business objectives — most importantly, its ambition to create the most valuable bank in the UAE.

ADCB sees its responsibility toward our employees as multifold: we aim to ensure long-term fulfilling and engaging careers; offer long-term development and training opportunities; create a work environment characterised by meritocracy and fairness in all em-ployee-related processes; foster diversity while driving Emiratisation; and ensure a safe and healthy workplace.

The professional development of employees is essential to the Bank’s future. We have implemented a systematic approach to identifying, developing and deploying talented employees to ensure an appropriate supply of high calibre individuals with the values, skills and experience for current and future critical positions. In 2013, we continued to build consistency across our learning curricula and to improve the relevance and quality of learning programmes. We have endeavoured to achieve a standard of excellence focusing on leadership, values and technical capability.

Performance management is vital in helping ADCB employees build long-term partnerships through enhanced customer service as well as strong relationships with one another. ADCB’s performance, reward and recognition strategy is designed to ensure sustainable performance through reward programmes that support our business strategy.

At ADCB, we foster a work environment that embraces diversity. This brings a wider range of experiences and insights to the Bank and acts as a catalyst for creativity and innovation. Our workforce is made up of a highly blended group of employees with great diversity of gender, age, nationality, religion and individuals with disabilities. We work hard to ensure ADCB is inclusive of all colleagues.

Our employment policies are developed to reflect legal, cultural and employment requirements. We aim to be recognised as an employer of choice and therefore seek to maintain high standards and good employee relations at our workplaces.

Emiratisation is an important focus at ADCB, and the Bank employs and empowers UAE nationals through a range of well-orchestrated Emiratisation efforts.

These efforts are aligned with the UAE’s Emiratisation strategy to ensure long-term viability and development of the UAE.

As part of ADCB’s Emiratisation strategy, ADCB is determined to attract and retain the best UAE national talent through its Emirati Graduate Development Programme (EGDP) and be regarded as the employer of choice in the local market. The ADCB EGDP is a world-class programme for UAE national graduates, and its goal is to take participants on a journey that will enable them to fulfil their professional and career ambitions.

The objective of the EGDP is to develop recent UAE national graduates to be ‘desk-ready’ to take on full-time job responsibilities within specified business areas across ADCB. The multi­faceted programme offers practical business experience through sequential and strategic job rotations, technical skills training and professional qualifications in relevant fields. During 2013, ADCB committed to recruiting and developing approximately 80 UAE national graduates of the EGDP as full-time employees.

In April 2013, as another move forward in its Emiratisation strategy, ADCB signed a partnership agreement with the Ministry of Presidential Affairs for the Absher Initiative. The Initiative is based on four pillars: creating jobs; training and rehabilitating the UAE national workforce; increasing hiring in the private sector; and developing and encouraging the role of the private sector within the UAE.

By recruiting under the Absher Initiative, ADCB aligned with the country’s leadership vision for the year 2013 to be the Year of Emiratisation. By doing so, ADCB provided young and talented UAE national graduates with opportunities to hold managerial positions across different lines of business within the private sector, while guaranteeing their financial stability and successful careers.

Through the Absher Initiative moving forward, ADCB will continue to provide UAE nationals with the training they need to develop their leadership and managerial skills. It will allow the Bank to enhance management and self-development skills among UAE nationals, while providing them with the required development to enable them to gain valuable work experience.