Business Review

A leading bank in the UAE, ADCB provides world-class customer service and a suite of innovative banking products for a range of clients from individuals to large corporates. Here we review the performance of our business segments and support functions in 2017.

Consumer
Banking
Group
(CBG)

With more than 800,000 customers, the Consumer Banking Group provides products and services for both retail and high-net-worth individuals, offering conventional and Shari’ah-compliant banking. We have 47 branches in the UAE, two branches in India, one branch in Jersey, representative offices in London and Singapore, three pay offices, two digital banking centres, 357 ATMs, a 24/7 contact centre, leading online and mobile banking applications, tele-sales and a direct sales force.

Our continued commitment to service excellence, agility in managing the asset portfolio and a determined focus on the developing needs of our customers, helped the Group deliver a good performance over the past year, despite an operating environment that was challenging.

We continued to strengthen our businesses, gaining market share, launching innovative new products, and further investing in digital to ensure we are well-positioned for the future.

Operating income grew by 3% year-on-year to AED 4.081 billion, and operating profit before impairment allowances grew by 3% to AED 2.242 billion. Meanwhile, customer deposits increased by 3% to AED 47 billion over 2016, while loan growth was up 2% over 2016 at AED 73 billion.

In view of prevailing market conditions, the mix of retail asset acquisition changed significantly as we placed a greater emphasis on expanding our secured loan book to diversify and build resilience in the asset portfolio. This agility has successfully reduced the risk level of the portfolio, while gaining market share in secured assets.

Meanwhile, the growth of our liability base was propelled by granular low-cost, current and savings accounts (CASA), which constitute 75% of total consumer banking deposits.

Customer Loyalty

We have continued our commitment to outstanding service, investing in improving the customer journey at every touchpoint. This is part of the reason why the Bank has such strong customer loyalty and consistent brand recognition.

This year we launched a new service guarantee against the nine areas of service that matter most to our customers. We have committed to meet specific service standards or reimburse our customers with up to 5,000 additional TouchPoints (our flagship bank-wide loyalty programme) if we fail to do so.

Almost two thirds of our retail customers have banked with us for more than three years, a strong indication of the level of trust we have developed. A quarter of our customers redeemed their TouchPoints throughout 2017. More than 90% of TouchPoints are now being redeemed digitally — in an instant — at more than 75 merchant partners and over 850 outlets across the UAE as well as online for Etihad Guest miles/Skywards miles or payment of utility bills.

We have also added value to those of our customers who travel regularly, with the successful launch of our Traveller Credit Card in collaboration with MasterCard, Cleartrip and Hotels.com. It offers a range of rewards designed to enhance the experience of regular international travellers and has quickly become ADCB’s fastest-growing credit card. It follows the success of our Etihad Guest Above credit and debit cards, which offer Etihad Airways miles as rewards.

We are investing in an integrated approach to digital banking, designed to transform convenience for the customer.

Digital Transformation

To enable better engagement and to become the leading digital bank in the UAE, we are quickening the pace at which we launch new products and thinking outside the confines of traditional banking.

Our ongoing investment in digital technology offers another opportunity to improve our service, providing customers with easier, faster and more secure banking, while at the same time markedly increasing our efficiency. Building on our existing robust multichannel infrastructure, this year we plan to roll out further enhancements to our service.

Mobile banking is our fastest-growing digital channel. Adoption and usage of the internet and mobile banking platforms continued to grow in 2017, with the percentage of active users reaching 49% for internet banking and 67% for mobile banking. Over the past year, the number of active users adopting the ADCB Mobile app increased by 38% and monthly log-ins grew almost 10%. The app includes additional security through fingerprint authentication and offers balance previews and international transfers using ADCB credit cards. The app also enables faster remittances to 14 countries through the Xpress Money partnership.

In total, 96% of our retail financial transactions occurred electronically, with growing use of mobile and internet banking.

We launched our second uBank digital centre in 2017, allowing customers to switch from traditional banking to paperless digital banking with the help of biometric authentication, digital signatures and video assistance from ‘virtual relationship officers'.

VoicePass, our multilingual voice authentication system that cuts the time customers must spend proving their identity when calling our contact centre, has also proved to be a hit. Approximately 125,000 customers now make use of the service — the first in the market — with 19% active users every month and more than 1,700 authentications every day.

Meanwhile, our Securities mobile trading app has almost doubled the number of users, with over 5,000 people using the service every month. This, and last year’s addition of a dedicated web portal, helped to double our market share in brokerage.

We are making better use of data analytics as our digital footprint grows, helping us to anticipate our customers’ needs, likes and behaviours.

operating income rose by 3% to

(AED Billion)

4.081

Active mobile banking users

67%

Active internet banking users

49%

New segments update

ADCB Private, our private banking business, delivered a strong performance, topping AED 11 billion in assets under management at the end of 2017.

With a focus on high net worth individuals and families, we provide a unique combination of in-depth local knowledge with sophisticated international insights to help create bespoke wealth management strategies.

The number of our clients — and their wealth — is growing thanks to our convenient access to global investment and capital markets, specialist lending and high-end concierge services.

In the last quarter of 2017, we launched the Target Date Fund addressing the lack of products in the market focused on retirement planning. The fund, a first in the MENA region, was launched in partnership with US-based Principal Global Investors, a world leader in managing target-date and multi-asset funds. It aims to help residents in the UAE plan for a comfortable retirement by bridging the gap between their mandatory end-of-service benefits and actual retirement needs.

Meanwhile, our popular SimplyLife product suite contributed AED 3.4 billion to the retail asset book in 2017. It offers financial solutions that are simple, fast and accessible with a portfolio of products and services that range from personal and auto loans, to cash-back credit cards.

SimplyLife has swiftly grown to become a sizeable mass-market banking operation. Last year we launched the ‘Family Card’ which allows customers to personalise the service by choosing a personal photo to feature on their bank cards.

Another significant milestone in 2017 was the launch of our merchant acquiring business, which is quickly gaining ground in a competitive market. By the year-end, we had signed up 440 merchants.

Expansion in Islamic Banking

Islamic banking is an important and rapidly-growing part of the Bank. The business provides high-quality, Shari’ah-compliant financial solutions that meet a range of our customers banking needs and are consistent with their values and traditions.

While still a relatively new part of the business, Islamic banking is one of the fastest-growing areas of the Bank. In 2017, assets grew 17% and deposits grew by 23% over 2016.

Our experienced Islamic banking team is committed to developing innovative products and services, ranging from bespoke Wholesale Banking solutions to pioneering retail financial products.

The team benefits from an extensive training and development programme. ADCB’s Islamic Banking Academy enrolled more than 2,000 employees on classroom and online courses in 2017. This training helps staff to educate customers about the underlying Shari’ah-compliant structures of our financial services and to promote the benefits of Islamic banking accordingly.

Our success in this area has drawn praise from across the region and Amr Al Menhali, who heads the division, was named ‘Islamic Banker of the Year 2017’ at the recent Global Islamic Finance Awards.

Our results illustrate the central role we play in the Bank and our contribution to driving sustainable growth. This year — and beyond — we anticipate that the Bank’s digital transformation will help to maintain and fortify our momentum.

Wholesale
Banking
Group
(WBG)

We provide a full portfolio of services, including world-class transaction banking and investment banking. Our clients range from government-related entities (GREs) to financial institutions, large corporates, mid-sized corporates and small-to-medium-sized enterprises (SMEs). The Wholesale Banking Group is responsible for our branches in India, as well as the representative offices in London and Singapore. We continue to benefit from our strategic transaction banking relationship with Bank of America Merrill Lynch and a recently formalised relationship with Korea’s Kookmin Bank.

While constrained by ongoing regional market challenges, our performance across 2017 was buoyed by rising investment, a partial recovery in the oil price, and easing liquidity. We experienced good underlying performance across all segments and increased our market share.

Our operating income rose by 6% to AED 2.736 billion and operating profit before impairment allowances delivered an increase of 4% to AED 1.958 billion. Customer deposits and net loans both expanded by 4% over 2016 to AED 69 billion and AED 90 billion respectively at year-end.

As elsewhere in the bank, our results were supported by a relentless drive to enhance our customer experience and provide state-of-the-art digital banking services. The upgrade of our core banking system in 2017 has allowed us to better leverage technology, including digital functionality to enhance the excellence of our services.

We saw positive growth in the SME and mid-sized corporate loan book in 2017, building on our considerable gains in market share over the past few years. Our SME business continues to be a net contributor of liabilities to our balance sheet.

In large corporate and the Government sector (GREs), we also grew the loan book and made gains in market share, in cash management and trade finance, in particular. Both large corporates and GREs have kept a sharp focus on making sure debt remains low, limiting their demand for new loans. We are clear about the nature of business we are prepared to underwrite in this segment, and are prepared to decline loans priced on uneconomic terms.

Our increasing investment in digital technology will allow us to sharpen our advantage in customer service, helping us to continue to grow market share, especially in lending to SMEs and mid-sized corporates, and to extend our leadership in transaction banking, including our trade finance business.

operating income rose by 6% to

(AED Billion)

2.736

World-class banking

Transaction banking has continued to be a priority, offering us the opportunity to cross-sell across other areas of the business. Our cash and trade management business is widely regarded as world-class and its success has helped to fuel customer loyalty.

Once again, transaction banking revenues grew by more than 16% in 2017 as we welcomed a record number of new clients and won almost twice as many cash management mandates as the previous year. In trade finance, open account financing also soared, and revenues increased by 10% year-on-year.

Our cash management business is recognised as a leader in the region. The business is growing quickly due to its excellent customer service. Our implementation quality, range of products and outstanding services are resulting in substantial new business wins. This is helping to drive strong growth in low-cost, sticky current and savings account deposits.

Meanwhile, Pro-Cash, our award-winning online transaction banking platform, has been another strong asset, helping us attract business from a diverse range of clients, ranging from GREs and large corporates through to SMEs. The portal, which is supported by a mobile app, provides easy access, automation and clarity around each transaction.

In 2017, Euromoney magazine named the bank a ‘Five Star Cash Manager’, ‘Five Star Trade Finance Bank in the Middle East’ and ‘Best Bank for Transaction Services in the Middle East’. These awards are based on client feedback, and effectively rank ADCB as the leading provider in the region, offering products and services that rank among the best globally.

The quality of our long-term clients combined with our market-leading transaction banking areas of cash management and trade finance, provide a stable platform on which to build profitable growth.

The growth of our transaction banking business has led to an increase in the volume and value of overseas payments sent by ADCB. We are committed to developing sustainable partnerships with a carefully-selected network of correspondent banks and our network management team regularly review our nostro accounts to ensure our customers receive competitive pricing and the very best service levels.

We have also been recognised as the premier real estate escrow account provider in Abu Dhabi, by both the number of accounts and liabilities.

Real estate developers are now required to place investors’ deposits in escrow accounts, following a regulation introduced in Abu Dhabi last year. The regulation was designed by the Department of Municipal Affairs after detailed consultation with ADCB.

Our mission is to foster a high-performance culture across the Bank and to ensure our multi-skilled workforce is fully supported and engaged.

Driving Digital

We are investing in an integrated approach to digital banking, designed to transform convenience for the customer. We are planning new customer journeys. For example, in cash management and trade finance, we plan to significantly reduce account opening times and to speed up lending decisions, while enhancing the ability of clients to better serve themselves.

This builds on existing initiatives. Most notably, our channel migration programme is rapidly converting clients from physical to electronic banking. Clients are simplifying their banking through practices such as scanning cheques into the Bank’s clearance system from their offices. In just two years, the proportion of clients serving themselves in this way has risen from 38% to 80%. This has multiple benefits for ADCB and our customers. Automation improves service levels for WBG customers. Additionally, automated electronic banking makes our operations more cost-efficient.

To support this, we introduced a new tool that allows customers to automatically release payments to customs when their goods reach UAE border posts. The customs request is automatically sent to the customer’s ERP (Enterprise Resource Planning) system and the payment is released. The whole process takes just 15 minutes.

Specialist Investment Banking

We enjoyed a record year in our developing investment banking business. Cash revenue was up 38% as we substantially increased the number of mandates, winning a series of new clients.

The benefits to our clients remain our focus, ahead of pure profitability.

Having started as a pure advisory business specialising in structuring complex transactions, investment banking has additionally developed debt underwriting and distribution services, reinforcing ADCB’s presence in the primary and secondary markets. By bringing these services together, we helped the bank to form relationships with leading corporates while executing profitable transactions without absorbing the Bank’s capital.

In recognition of our capabilities, Euromoney gave us an award for our debt capital markets activity in the UAE.

Wholesale Banking has a clear strategy for profitable growth, which we believe will continue to deliver value in the years ahead. We plan to maintain our strategy of growing market share, especially in lending to SMEs and mid-sized corporates, and to extend our leadership in transaction banking. Our increasing investment in digital technology will allow us to sharpen our advantage in customer service.

Treasury & Investments Group

We offer both conventional and Islamic solutions spanning foreign exchange, money markets, fixed income, equity derivatives, interest rate derivatives, commodity derivatives, structured products and risk management solutions. In 2017, we placed a special focus on the foreign exchange requirements for small, medium-sized corporates and financial institutions to gain inroads in market share.

Treasury enjoyed a strong year with an operating income of AED 1.778 billion and operating profit before impairment allowances of AED 1.569 billion, an increase of 11% and 12% respectively over the previous year. Robust balance sheet management and a healthy investment book, coupled with FX trading opportunities and a growth in product sales yielded strong results across the year.

Treasury’s contribution to the bank’s profits remains substantial and accounts for 20% of operating income, providing valuable diversification from the Consumer and Wholesale Businesses.

The first half of the year was especially productive, as opportunities were seized to grow the investment book, while helping the Bank’s funding costs as we continue to increase customer activity in treasury products such as interest rate and currency hedging.

Despite the regional disputes and widening geopolitical uncertainty that unsettled the market from June 2017, trading remained robust helped by our involvement in the Formosa and Kangaroo markets.

We have been one of the most active banks in the region in the Formosa market over the past year, issuing more than USD 1.5 billion in four transactions throughout 2017.

We were also active in Australia’s Kangaroo market for the first time in four years, becoming the only Middle Eastern bank to issue a multi-tranche transaction in this market. We raised AU$ 350 million, swapping it back into US dollars.

operating income rose by 11% to

(AED Billion)

1.778

wholesale borrowings

(AED Billion)

41

Clear strategy

Our strength is based on our strategy, which is simple and clear: customer collaboration, supported by innovative products and solutions, state-of-the-art balance sheet management, rigorous risk management, and investment in cutting-edge technology and talent.

While there are implications for capital and liquidity with the introduction of Basel III, we are well-prepared for these changes, buoyed by our strong capital position and high liquidity coverage ratio.

This strategy, alongside our agile decision-making, has helped us navigate the effects of a volatile market and regulatory change. It has also shaped the creation of best-practice in liquidity coverage, capital management and funding diversification earlier than the rest of the market.

Despite rising benchmark interest rates, our cost of funds remained stable through both customer deposits and capital markets activity. As liquidity in the UAE interbank market eased in 2017, we successfully repriced customer liabilities. We also tactically took advantage of niche capital market opportunities to raise funds at highly-competitive rates.

Wholesale borrowings of AED 41 billion at year-end provided a diversified and stable term structure for our liability profile, and bolstered the Bank for the introduction of Basel III in the UAE in 2018.

Treasury has worked closely with Wholesale Banking throughout the year to provide more complete solutions to ADCB’s client base and support cross-selling the Bank’s considerable expertise.

Finally, our strategic focus on technology has enabled us to transact in a growing number of products. Our Treasury technology architecture is state-of-the-art and provides management and the ADCB Board with all required risk metrics. The foreign exchange platform continued to be upgraded in 2017, and the implementation and consolidation of the Bank’s core banking system enhanced the capabilities of our own Treasury technology.

Property Management

Our Property Management business provides vital services to the UAE’s real estate sector, differentiating itself through ADCB’s characteristic customer service excellence. The business operates through our wholly-owned subsidiaries, Abu Dhabi Commercial Properties (ADCP) and Abu Dhabi Commercial Engineering Services (ADCE). In addition, Property Management oversees ADCB’s investment properties and rental income.

ADCE is the partner of choice for complex medium- and large-size regional development projects. Delivering a full range of building design and construction property development services, ADCE has a sharp focus on efficiency and exceeding customers’ requirements — whether they are the Bank’s borrowing clients or external parties.

ADCP is a major participant in the UAE real estate sector. On behalf of the Department of Finance of the Government of Abu Dhabi, and others, it manages more than 2,100 buildings, comprising more than 51,000 residential and commercial units throughout the UAE.

In addition, ADCP manages a rapidly growing private portfolio. The units managed on behalf of the Department of Finance are part of a Government initiative, which grants Abu Dhabi nationals plots of land for commercial or residential development. ADCE oversees the construction of those buildings; once they are completed, ADCP provides ongoing facilities-management services.

In 2017, our Property Management business had an operating income of AED 300 million and collected more than AED 2.8 billion in rent on behalf of its clients in 2017. Illustrating the scale of the business, it also addressed more than 170,652 service requests and resolved over 53,561 landlord-tenant queries.

Business Support

Our support services are the backbone of the Bank. They deliver the robust IT infrastructure and highly-skilled people on which our businesses depend. Our Group Business Services (GBS) provides IT infrastructure and is tasked with accelerating digital transformation. Human Resources (HR) is responsible for engaging our workforce, promoting our values and fostering the passion for customer service excellence, that is the hallmark of the Bank.

Group Business Services

As we accelerate our digital transformation, GBS remains a key enabling force behind its successful delivery. By working in collaboration with the departments across the Bank, we are adapting and enhancing our IT infrastructure and helping to create new ways of working.

The highlight for 2017 was the seamless delivery of our new, state-of-the-art, core banking system. This was the Bank’s most complex and biggest capital investment project, bringing together around 500 staff from across the business. After two years of programming, testing and training, the diverse collection of aging banking systems was combined into one, future-ready system. The ‘go live’ was completed in just two and a half days with no interruption to customer service.

The new platform prepares us for the next stage of growth, bringing system resilience, agility, scale, and digital-ready capabilities. As the banking industry is quickly becoming digital-first, we will continue our investment in digital, capitalising on our new system to scale for growth.

The new system has enabled us to prepare and swiftly launch new products, such as a new private banking mobile and internet app, and the new mobile solution for ADCB Securities. This will keep us well ahead of our competitors and deliver additional value for customers.

Our investment in best-in-class cyber defence continues. Effective cyber security substantially protects the Bank and its customers from unauthorised exploitation of systems, networks and technologies.

We have also played a pivotal role in re-engineering the Bank’s operational processes, increasing efficiency and reducing costs through ITMAM, our captive shared services centre.

In 2017, ITMAM delivered a solid performance with 99.3% of service level agreements met across Consumer and Wholesale Banking Groups. It also set up a new outsourced operations centre in India.

Transactions processing per staff was up 21% compared to 2016. Despite the extra responsibilities, ITMAM headcount reduced by 8% to 973, clearly demonstrating greater efficiency.

Over the past year, GBS processed double-digit percentage transaction volume increases in businesses such as payments, trade and treasury products. Furthermore, we saw a 140% increase in the number of cheques placed in deposit machines over 2016. Initiatives like these are helping ADCB to grow without adding to the cost base.

This year we will assume responsibility for an increasing range of processes, guaranteeing system resilience while enabling the bank to become agile at scale. We will continue to foster innovative and nimble ways of developing new products and services, while managing costs through automation and process improvements, as well as expanding the role of ADCB’s outsourced Indian back office operation.

Employee engagement rose to 77% last year, up once again on the results from our previous survey. We are proud of the fact that more than a third of our staff have been with the Bank for more than five years.

Human Resources

Our mission is to foster a high-performance culture across the Bank and to ensure our multi-skilled workforce is fully supported and engaged. We want to attract and retain the best available talent to help provide first-class services in every area of the business.

We have made significant progress in this, with an emphasis on our continuing enhancements to career development and growing employee engagement. We are proud of the fact that more than a third of our staff have been with the Bank for more than five years — a testament of our success.

Employee engagement rose to 77% last year, up once again on the results from our previous survey. We have maintained a robust response rate with the majority of our employees, both full-time and outsourced, participating in the annual survey, sharing their views with the management.

The survey also revealed greater attachment — 92% — to our values following an internal communication and engagement campaign during the year.

service level agreements delivered by Itmam

99.3%

Branch academy programme participants

411

We launched a comprehensive UAE National Talent Development Programme to effectively fast-track the careers and leadership prospects of our most talented UAE nationals.

Career development

A new career development framework was also implemented in 2017. Employees can now proactively manage their careers, with the support of their managers and a comprehensive suite of training libraries, guides, tools and other resources.

The career development website highlights potential career moves, and provides a guide for the skills and training they may need for career growth. This initiative empowers our people, giving them greater control of their career progression, while providing more structured individual assessments and a stronger link between performance and rewards.

In partnership with some of the best assessment and professional learning institutions in the region, we launched a comprehensive UAE National Talent Development Programme, supporting our Emiratisation strategy, to effectively fast-track the careers and leadership prospects of the most talented UAE nationals at all organisational levels.

After a period of careful assessment, the top 100 were selected to take part in the programme, where individuals will benefit from a period of targeted evaluation and customised training. At the same time, we are continuing to seek out talented Emirati graduates as candidates for other critical positions across all areas of the Bank.

This flagship development will result in a larger number of UAE nationals being promoted to leadership positions and other critical roles requiring specialist expertise. It will place us in pole position to attract and retain highly-capable UAE national professionals, while building a pipeline of talent to fill key positions throughout the organisation.

Meanwhile, our Tamooha initiative has prospered. This provides a women-only workspace, telecommuting and part-time options for highly-skilled Emirati women who want a work environment suited to their traditional values. There was a marked improvement in the performance of women working from home, and the group itself is now carrying out a broader range of activities. A small number of these women have also chosen to move from Tamooha into full-time employment with the Bank.

Naturally, with the introduction of our new core banking system alongside the continuing digital transformation of the Bank, we have facilitated additional training for staff across the business.

The learning team played a critical role in ensuring training on the new system was successful and fully embedded with all users. Accordingly, 142 e-learning modules and assessments were designed and delivered internally. With specialist assessments and self-paced learning, new users easily familiarised themselves with the functionalities of the new system.

We also increased the level of activity in the Branch Academy. We further refined the curriculum to include additional specialised programmes for specific categories of branch employees (tellers, customer service representatives and operations staff). During 2017, 411 participants attended Academy programmes and 192 employees attended the specialised courses. At the same time, preparations are in progress to extend the academy curriculum to include 12 technical learning programmes in addition to the mandatory learning requirements.

Throughout the course of the year, around 60% of the branch network employees went through formal training programmes, in addition to the regular business briefings and knowledge sharing that are part of our usual business.

Several independent organisations that benchmark HR have recognised our team’s accomplishments. The Gulf Customer Experience Awards rated us as having an “Innovative Approach to Emiratisation to Deliver Exceptional Customer Experience” for Tamooha, and “Best Employee Engagement in Financial Services”.

This year we plan to further enhance our support for automation and digitisation, while continuing to facilitate a high-performance culture across the Bank by promoting our values, expanding training opportunities and augmenting the UAE National Talent Development Programme.

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