ADCB's 2016 results reflect the strength of our strategies and speak to the discipline and resilience of the Bank. The Bank's underlying performance and fundamentals remain strong and we remain committed to protecting the long term financial strength of the Bank in our pursuit of sustainable growth.
As part of our discipline, a prudent and robust approach to risk management is a foundational strategy of the Bank. We believe this to be a differentiator that sustains us and that favours ADCB going forward, as we manage the Bank for long-term success.
Underscoring our resilience, the Bank's strong results in 2016 were delivered in a challenging environment. In the interest of transparency, the following pages take a closer look at the numbers and, at a granular level, management's views on the factors contributing to the Bank's performance.
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Figures may not add up due to rounding differences.
¹ In Q2'16, loans and advances to banks were reclassified to “Deposits and balances due from banks, net” to better reflect the underlying nature of the business of the borrowers. Accordingly, comparative amounts pertaining to previous years were reclassified to conform to current period's presentation
(AED billion)
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Operating income of AED 8.495 billion was up 3%, while operating profit before impairment allowances of AED 5.700 billion, was up 5% over 2015, reflecting the Bank's strong fundamentals and resilient financial performance in 2016. The Bank's solid underlying performance was also reflected in our quarterly numbers, with an operating income of AED 2.171 billion, up 8% and operating profit before impairment allowances of AED 1.443 billion, up 11% over Q4'15. The Bank achieved these results in the absence of significant recoveries and interest in suspense reversals recorded in 2015, which were not repeated in 2016.
Net profit of AED 4.157 billion for 2016 and Q4'16 net profit of AED 1.004 billion were 16% lower year on year, impacted by the lingering effects of low oil prices on economic activity and tightened liquidity, which resulted in higher funding costs and cost of risk for the Bank. Cost of risk for 2016 was 0.83% compared to 0.29% in 2015, reflective of our prudent and disciplined approach to risk management.
Gross interest and Islamic financing income of AED 8.751 billion, was up 12% over 2015, driven by a 10% increase in average interest earning assets over 2015. While asset yields remained strong, higher cost of funds resulted in a flat total net interest and Islamic financing income of AED 6.201 billion, and a lower net interest margin of 2.97% in 2016. The Bank increased its time deposits 13% year on year, providing stability with longer term deposits. The higher premium paid on these deposits and higher Eibor drove cost of funds to 1.33% from 0.92% in 2015.
Non-interest income of AED 2.294 billion was up 12% over the previous year and accounted for 27% of operating income in 2016 compared to 25% in 2015. The increase in non-interest income was mainly driven by higher trading income and higher fee and commission income. Net trading income of AED 522 million in 2016 was up 48% year on year, mainly due to higher FX and derivative income. Net fee income of AED 1.472 billion was up 2% over 2015, primarily on account of higher retail banking fees.
The Bank's disciplined approach to cost management resulted in operating expenses of AED 2.796 billion in 2016, 1% lower year on year. The ongoing bankwide cost management initiatives and higher revenues resulted in an improved cost to income ratio of 32.9% compared to 34.2% in 2015. This improvement was achieved whilst we continued to make prudent investments in our businesses, systems and infrastructure, including an upgrade of our core banking system and a set of digital initiatives to enhance our offerings and customer service.
Total assets reached AED 258 billion as at 31 December 2016, an increase of 13% over 2015. Net loans and advances to customers were AED 158 billion, up 8% year on year, compared to system wide growth of 6%. Consumer Banking loans increased 5%, while Wholesale Banking loans increased 11% year on year. 94% of loans to customers (gross) were within the UAE, in line with the Bank's UAE centric strategy. Loans to banks decreased 52% year on year to AED 3.6 billion.
Total customer deposits increased to AED 155 billion as at 31 December 2016, up 8% year on year, outpacing the system wide growth of 6%. Year on year, low cost CASA deposits increased 3% to AED 65 billion, and comprised 42% of total customer deposits. In a tight liquidity environment, the Bank was able to maintain its loan to deposit ratio of 101.9%, and improved its liquidity ratio to 29.2% from 25.8% in 2015.
The Bank adopted the liquidity coverage ratio (LCR) standard issued by Basel and the UAE Central Bank. LCR at the end of 2016 stood at 129% as compared to a minimum ratio of 70% prescribed by UAE Central Bank. ADCB was amongst the first banks approved by the Central Bank to publish the LCR ratio.
Investment securities totaled AED 33 billion, an increase of 58% year on year, mainly driven by an increase in UAE government bonds, providing further liquidity for the Bank. The Bank was a net lender of AED 22 billion in the interbank markets at year end.
Capital and liquidity position continue to be at industry leading levels, with a capital adequacy ratio of 18.92% and a Tier I ratio of 15.66% compared to 19.76% and 16.29% respectively as at 31 December 2015. The reduction in capital adequacy ratio was mainly on account of balance sheet growth and a change in asset mix. The capital adequacy ratio minimum requirement stipulated by the UAE Central Bank is 12% and the Tier I minimum requirement is 8%.
Non-performing loan (NPL) and provision coverage ratios were 2.7% and 129.9% respectively, compared to NPL ratio of 3.0% and provision coverage ratio of 128.5% as at 31 December 2015. Non-performing loans were AED 4.600 billion compared to AED 4.834 billion as at 31 December 2015, a decrease of 5% year on year.
Charges for impairment allowances on loans and advances, net of recoveries amounted to AED 1.552 billion in 2016 compared to AED 500 million in 2015. Loan impairment charges in 2016 included collective impairment charges of AED 226 million to account for increase in the loan book and reflecting our prudent risk management approach.
The Bank's collective impairment allowance balance was AED 3.194 billion, 1.89% of credit risk weighted assets and above the minimum 1.5% stipulated by the UAE Central Bank, while individual impairment balances stood at AED 2.851 billion.