ROBUST PERFORMANCE ROOTED IN EFFECTIVE RESPONSE TO COVID-19

The COVID-19 emergency presented many challenges to our communities in 2020. ADCB adapted rapidly to economic disruption while also providing support and continued service excellence to our customers.

In this context, I am pleased to report that the Bank’s financial performance remained solid, with operating profit before impairment allowances holding steady at AED 7.945 billion for the full year. The Bank produced a net profit of AED 3.809 billion, with impairment charges higher than in the previous year, reflecting the economic conditions and the Bank’s exposure to NMC, Finablr and associated companies.

ADCB’s Board of Directors proposed a dividend of 27 fils per share, which is equivalent to 49% of full year net profit, in line with its continued commitment to providing sustainable returns to shareholders.

Faced with a difficult operating environment, marked by low credit growth and higher market risk, the Bank adopted, and effectively implemented, a series of decisive measures to promote financial resilience. We reinforced our long-standing strategy to increase low-cost CASA deposits, which combined with lower benchmark interest rates to contribute to a significant improvement in cost of funds in 2020. The Bank also decreased operating expenses significantly through aggressive realisation of merger-synergies, acceleration in digitisation and additional cost control measures. In addition, a proactive approach to resolving issues related to NMC Health Group has placed ADCB in a strong position to maximise recoveries.

UNWAVERING FOCUS ON ACHIEVING EFFICIENCIES

One of the major achievements of the Bank in 2020 was the realisation of significant efficiencies — through merger-related synergies and additional cost-management initiatives — while successfully maintaining and enhancing service levels.

ADCB Group made strong progress on merger synergies following the successful integration with Union National Bank and Al Hilal Bank, which was completed in April 2020, within just 11 months of legal close of the transaction. The Bank captured AED 917 million of synergies in 2020, surpassing its target of AED 750 million, and is on track to exceed the full target of AED 1 billion in 2021. Meanwhile, total integration expenses were AED 545 million, excluding capex, at the end of 2020, significantly below budget of AED 980 million.

In 2020, ADCB also stepped up a Group-wide efficiency drive, facilitated by acceleration of our digital transformation, to enhance customer service and streamline internal processes. The Bank has taken on board the experiences of 2020 to modify its operating model, rationalising the branch network to pre-merger levels and increasing the pace of new digital releases.

This is delivering tangible results, with operating expenses decreasing 14% to AED 4.526 billion in 2020. The Bank recorded a 190-basis-point improvement in the cost-to-income ratio in 2020 to 35.1%, excluding one-off integration costs.

INCREASE IN CASA DEPOSITS REFLECTING STRONG FRANCHISE

The Bank continued to pursue a strategy to rebalance and re-price the deposit base, with ADCB’s strong domestic retail franchise, market-leading cash management and trade finance platforms playing a key role in its success.

In 2020, CASA deposits increased 25% to reach AED 127.5 billion as at 31 December 2020. This growth was granular, with retail CASA deposits up AED 15 billion year on year, reflecting a high level of customer loyalty.

Total customer deposits decreased 4% year on year to AED 251 billion as at 31 December 2020, as the Bank continued to replace expensive time deposits, while the average deposit balance was AED 252 billion during the year.

CASA deposits accounted for 51% of total customer deposits at the end of 2020, compared to 39% a year earlier, combined with lower benchmark rates to produce a 111-basis-point improvement in cost of funds to 1.34% for full-year 2020.

Interest expense consequently improved 48% to AED 4.282 billion, while net interest income was 6% lower year on year at AED 9.783 billion, on account of lower benchmark rates and lower volumes amid subdued macro-economic conditions. Net interest margin held firm at 2.77% in 2020, compared to 2.84% in 2019.

ENDURING BALANCE SHEET STRENGTH

ADCB’s balance sheet has remained solid despite the challenges of the COVID-19 pandemic, and the Bank’s strong standing was reflected in the affirmation of its high investment grade ratings by S&P Global and Fitch Ratings in December 2020.

Total assets increased by 1% during 2020, while net loans declined 4% to AED 239 billion reflecting de-risking of the retail portfolio, a large corporate repayment in the second quarter of the year and significant provisioning levels.

The Group’s credit exposure remains well-diversified across a broad range of economic sectors, with a good balance between the Wholesale Banking Group and Consumer Banking Group. The UAE loan portfolio is tilted towards Abu Dhabi, which accounts for 58% of the total, while Dubai accounts for 26%.

To provide crucial support to our communities, ADCB has participated fully in the UAE Central Bank’s Targeted Economic Support Scheme (TESS), as well as providing additional customer deferrals to alleviate the economic impact of COVID-19. The Bank provided cumulative total deferrals of AED 12.8 billion to support over 67,000 customers as at 31 December 2020. Our approach has been to actively engage with customers to help them to transition out of the scheme. We received repayments of nearly AED 5.4 billion during 2020, resulting in a reduction of all outstanding deferrals to AED 7.5 billion at year-end.

ADCB has taken a conservative approach to provisioning amid the downturn in the economic environment due to COVID-19, applying macro-economic overlays to ensure continued balance sheet resilience. Impairment charges for 2020 were AED 3.993 billion, including AED 1.513 billion charges related to NMC Health Group, Finablr and associated companies. Full year cost of risk was 1.45%. However, excluding impairment charges related to NMC and Finablr, the cost of risk was 1%.

ADCB’s capital adequacy ratio (CAR) and CET1 ratios improved to 17.2% and 13.9% respectively at the end of 2020, from 16.3% and 12.9% at the end of 2019. The Bank’s liquidity position was also enhanced, with liquidity coverage ratio (LCR) improved to 156.8% at the end of 2020 from 127.3% at the end of 2019. These ratios are comfortably above minimum regulatory levels set by the UAE Central Bank.

LEVERAGING ADCB’S STRENGTHS

ADCB successfully navigated a wide range of challenges in 2020 and has demonstrated resilience operationally and in its financial performance. The Bank has emerged as a leaner and stronger organisation and can now look forward with cautious optimism to an expected economic recovery in the UAE in 2021.

Towards the end of 2020, the country was already experiencing an increase in economic activity, underpinned by a vaccination programme that is setting the pace globally. The Bank has started to experience the positive impact of improving consumer confidence, with a sequential rise in fee income in the fourth quarter of 2020 partly driven by higher debit and credit card spending.

ADCB’s strong franchise is reflected in many aspects of its performance over the last year — from the ability to continue to attract low-cost deposits, to higher levels of digital engagement by our customers. The Bank is now leveraging these strengths to press ahead with the implementation of a new strategy to accelerate digital transformation and capitalise on growth opportunities.

We will maintain our disciplined approach to cost management and expect to exceed our AED 1 billion run-rate synergy target in 2021, in addition to capturing additional efficiency gains. At the same time, we remain committed to maintaining a prudent approach to provisioning and risk management, especially in light of the continued global macro-economic environment.