CEO’s Report
Core strategy yields results
Continued focus on maintaining a strong and conservatively positioned balance sheet, driven by our strategy, contributed to sustained profitability in 2012.
Ala’a Eraiqat
Chief Executive Officer
While subdued economic conditions
persisted, with average loan growth
year-on-year reported at 2.6% across
all banks in the UAE, and GDP growth
projections reported at 4.0% in 2012,
our loan book was stable and we continued
to deliver strong operating performance,
with operating income up 9.0% in 2012.
Operating expenses were held flat as a result of our improved operating efficiency and dedicated approach to proactive cost management, resulting in a 170 bps improvement in our cost to income ratio year-on-year from 33.1% to 31.4%.
As at 31 December 2012, our collective loan impairment allowance balance was AED 2,257 mn and 1.76% of credit risk weighted assets, in excess of the UAE Central Bank Directive for banks to increase the level of collective provisions to 1.50% of credit risk weighted assets by 2014.
Non-performing loan ratio was 5.4% compared to 4.6% as at 31 December 2011, and provision coverage improved to 82.2% compared to 80% in 2011. Additionally, overdue but not impaired loans showed a significant decline of 61% to AED 4 bn (AED 10 bn as at 31 December 2011) and total impairment charges were 29% lower.
The Bank’s continued improving financial fundamentals resulted in Moody’s upgrading its outlook on ADCB from negative to stable in April 2012, while other external ratings were retained and reaffirmed.
We remain well capitalised at 23.05%, and Tier I ratio improved significantly to 17.47% from 15.90%. Our liquidity ratio was 24.0% compared to 22.1% in 2011.
The Board of Directors has recommended a 25% cash dividend of AED 1.4 bn, equivalent to 50% of net profit. The 5% addition to the Bank’s ordinary dividend distribution strategy of 20% represents a special payout as a result of the Bank’s strong capital base and financial performance in 2012.
Our funding structure remained well diversified and investors demonstrated continued good appetite for ADCB’s issuances. We successfully executed our longest issuance (25 years), and tapped issuances in Swiss francs and Chinese renminbi despite turbulent international and local market conditions.
As we enter the new year, I highlight a few initiatives currently under way:
I also highlight that, in line with our current provisioning policies, the Bank continues to reassess loss history and probability of default and loss given default, in various portfolios at each reporting period, and we remain prudent in building adequate provisions based on our experiences in the portfolio and current economic conditions.
We remain confident, and continue to focus on our strategic objectives. We will take advantage of future improvements to capitalise on value-adding opportunities for our shareholders and to contribute to the UAE economy as a whole.
Ala’a Eraiqat
Chief Executive Officer
Operating expenses were held flat as a result of our improved operating efficiency and dedicated approach to proactive cost management, resulting in a 170 bps improvement in our cost to income ratio year-on-year from 33.1% to 31.4%.
As at 31 December 2012, our collective loan impairment allowance balance was AED 2,257 mn and 1.76% of credit risk weighted assets, in excess of the UAE Central Bank Directive for banks to increase the level of collective provisions to 1.50% of credit risk weighted assets by 2014.
Non-performing loan ratio was 5.4% compared to 4.6% as at 31 December 2011, and provision coverage improved to 82.2% compared to 80% in 2011. Additionally, overdue but not impaired loans showed a significant decline of 61% to AED 4 bn (AED 10 bn as at 31 December 2011) and total impairment charges were 29% lower.
The Bank’s continued improving financial fundamentals resulted in Moody’s upgrading its outlook on ADCB from negative to stable in April 2012, while other external ratings were retained and reaffirmed.
We remain well capitalised at 23.05%, and Tier I ratio improved significantly to 17.47% from 15.90%. Our liquidity ratio was 24.0% compared to 22.1% in 2011.
The Board of Directors has recommended a 25% cash dividend of AED 1.4 bn, equivalent to 50% of net profit. The 5% addition to the Bank’s ordinary dividend distribution strategy of 20% represents a special payout as a result of the Bank’s strong capital base and financial performance in 2012.
Our funding structure remained well diversified and investors demonstrated continued good appetite for ADCB’s issuances. We successfully executed our longest issuance (25 years), and tapped issuances in Swiss francs and Chinese renminbi despite turbulent international and local market conditions.
As we enter the new year, I highlight a few initiatives currently under way:
- In April 2012, the Bank’s shareholders approved a buyback of up to 10% of the Bank’s outstanding shares. I am pleased to inform you that the Central Bank of the UAE and ESCA have recently approved this request and we are proceeding in accordance with their directives.
- We continue to invest in new businesses and I am pleased to advise that we received a licence from the Insurance Authority to set up a takaful insurance company, which we aim to launch in 2013.
- Over the last two years we have added AED 3.6 bn in retained earnings before payment of interest on capital notes, which has resulted in strong improvement in our Tier I capital ratios. We are considering options of reducing the Tier II loan from the Ministry of Finance with alternative sources of funding, and improving our profitability.
I also highlight that, in line with our current provisioning policies, the Bank continues to reassess loss history and probability of default and loss given default, in various portfolios at each reporting period, and we remain prudent in building adequate provisions based on our experiences in the portfolio and current economic conditions.
We remain confident, and continue to focus on our strategic objectives. We will take advantage of future improvements to capitalise on value-adding opportunities for our shareholders and to contribute to the UAE economy as a whole.
Ala’a Eraiqat
Chief Executive Officer