Deepak Khullar

Group Chief Financial Officer


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Group CFO’s Message

In 2015, ADCB continued to focus on the strategic drivers of measured and sustainable growth, whilst also making course corrections for the changing economy. We remained steadfastly UAE-focused and customer-centric, managed our balance sheet for liquidity in a difficult environment, contained expenses whilst making prudent investments for growth, and maintained a sharp eye on asset quality and risk management. As a result, we made significant financial progress throughout our business and delivered another year of consistent performance and record earnings.

Amongst the highlights of 2015, net profit increased 17% to AED 4.927 bn, whilst net profit attributable to equity shareholders was up 22% to AED 4.924 bn. Return on average equity grew from 18.1% in 2014 to 20.3% in 2015, and return on average assets for 2015 was 2.22% compared to 2.00% in 2014.

Maintaining Our Strategy — Consistency and Agility

Over the years we have been very disciplined in our approach to growth, including resisting calls to grow more quickly. This responsible approach, a strong franchise and stable financial footing have left us well-positioned for the current economic slowdown following the decline in oil prices.

Today we continue to pursue opportunities for growth with a prudent risk-reward balance, emphasising liquidity before profitability, whilst also prioritising loans of high credit quality that can be written at acceptable margins.

We have consistently delivered good financial results whilst maintaining our margins, despite ubiquitous challenges in the global financial markets. Going forward, we will stay committed to our clients and customers in our core geography and core businesses. This is a reflection of our agility in adapting to the changing macro and regulatory environments whilst also maintaining a solid strategic framework focused on sustainable growth.

Measured and Sustainable Growth

We manage our balance sheet conservatively, and our loans and advances are diversified across all economic sectors to minimise risk. One of the ways we have achieved responsible, sustainable growth is through granular lending to consumers and to small and medium-size enterprises, which play an important role in the diversification and growth of the UAE economy. We believe our proven discipline in this market will continue to provide us with opportunities to grow our market share.

As a result of our lending practices, our net fees and commission income grew 16% year on year, and total non-interest income was up 6% over 2014. Our loan book (net) increased 9% over 2014, helping us to maintain our margins as we saw growth in higher-yielding loans supplemented with improved recoveries and lower impairment charges.

The credit quality of our loan book remains strong, with our year-end non-performing loan and provision coverage ratios at 3.0% and 128.5%, respectively. We remain selective about the sectors to which we lend and remain prudent about our provisioning.

Therefore, we will continue to focus on granular growth opportunities to build our balance sheet and on diversifying our revenue stream by placing increased emphasis on non-interest income generation.

Continued Emphasis on Liquidity

We continue to place a high priority on maintaining adequate liquidity, as we have for quite some time. Our balanced mix of long-term and short-term liabilities provides a stable funding base. Total customer deposits increased 14%, with current account and savings account (CASA) deposits accounting for 44% of total deposits as at 31 December 2015. Wholesale funding accounted for 20% (including euro commercial paper) of our total liabilities in 2015, providing a stable, long-term and reliable source of funding. The Bank was a net lender of AED 22 bn in the interbank markets, and our investment portfolio totalled AED 21 bn as at 31 December 2015, providing a further source of liquidity for the Bank.

It is important to note that the Basel III reforms have strengthened Liquidity Coverage Ratio (LCR) requirements for the banking industry overall. The new liquidity regulations will result in improved liquidity management for banks and will help the industry become stronger and safer, but they will also require more funds to be deployed in high quality liquid assets (HQLAs), which may have an impact on margins going forward. Our HQLAs include cash, Central Bank certificates, qualified reserves with the Central Bank and investment grade bonds, which represented 15.4% of total assets at year-end. ADCB is well-prepared to adapt to the changing global landscape and to comply with these new regulatory requirements.

Capital Ratios and Credit Ratings

We increased our revenues whilst also building a strong capital base. The Bank’s capital ratios continue to rank amongst those of industry leaders. The capital adequacy ratio was 19.76%, and the Tier 1 ratio was 16.29%, at the end of 2015.

It is noteworthy that, even after maintaining strong capital and liquidity ratios, we were able to increase our return on equity and our dividends. In addition, our credit ratings from Standard & Poor’s, Fitch and RAM remain strong at A, A+ and AAA, respectively.

Cost Control Discipline

In 2015, our cost to income ratio was 34.2%, which was within our target range and stable over 2014. The increase in staff costs in 2015 primarily reflected increases in the personnel needed to support our more granular approach to growth and to maintain our superior level of service.

At the same time, we have digitised many systems and processes to expand business opportunities with customers whilst also providing a better and more comprehensive banking experience. Today, more than 90% of retail financial transactions are done electronically, enabling us to better serve customers whilst moderating costs. Our differentiation comes down to disciplined execution and customer-centricity. As a result, we are able to source new business more efficiently and profitably.

ADCB is ready to meet today’s ongoing challenges and welcomes the opportunities at hand. We approach 2016 with optimism, tempered by caution and discipline. We look forward to building on our proven business model, expanding our relationships with current and new customers, and maintaining our conservative approach towards liquidity, capital, expense and risk management.

Deepak Khullar

Group Chief Financial Officer