ADIB Reports An Operating Profit Of AED 1,527 Mn For The 2009 Financial Year

Abu Dhabi Islamic Bank (ADIB) reported an operating profit, of AED 1,527 million for the 2009 financial year, an increase of 16.5% over the previous year.

After a year of multiple achievements, including: increasing total customer numbers by 27.2% to 342,097; the opening of the 50th branch in the UAE; an increase of 25.1% in total assets to AED 64.1 billion; the strengthening in both capital adequacy (to 16.96% under Basel II) and liquidity ratios (financing to deposits ratio improved to 83.9%); and a top three year-on-year improvement in customer service ratings, the Bank has taken a preemptive decision to set aside a year’s earnings to enhance its total provisions and secure future growth.

In 2009 UAE banking deposits and customer assets grew by 6.5% and 4.2% respectively, while ADIB grew its customer deposits by 36.7% to AED 48.2 billion (AED 35.3 billion in 2008 - adjusted to exclude the AED 2.2 billion of deposits converted into Tier 2 Capital on 31 December 2009 - and AED 29.6 billion in 2007) and net customer financing by 18.4% to AED 40.5 billion (AED 34.2 billion in 2008 and AED 24.3 billion in 2007). The further strengthening of the Bank’s overall liquidity is a testament to a keen focus on customer service across all segments, while the growth in customer financing comes on the back of a robust credit process that ensured the booking of quality assets.

The Bank’s capital position remains strong. Total capital resources, including both the Tier 1 and Tier 2 capital, as at 31 December 2009 improved to AED 12.3 billion vs. AED 8.6 billion at 31 December 2008 and AED 8.4 billion in 2007. A focus on putting in place a strong balance sheet saw the capital adequacy ratio further improve to 17.0% under Basel II principles (11.6% as at 31 December 2008) with the Tier 1 capital ratio improving to 13.52% (13.47% at 31 December 2008). On 16 April 2009 the Bank issued a Tier 1 capital note to the Government of Abu Dhabi and on 31 December 2009 the UAE Federal Government converted its AED 2.2 billion deposit pursuant to a Sharia’a compliant agreement into Tier 2 qualifying capital.

Continued investment in new branches, related infrastructure and human capital saw operating expenses increase by 11.9% to AED 993.4 million with the cost to income ratio declining to 39.4%, which reflects the balancing of the related revenue growth to bring the Group closer to its target of a 33% cost to income ratio.

ADIB continues to invest in growing its human capital. Since the beginning of 2008 a strong senior management team of highly skilled bankers with excellent reputations in global financial circles has been brought together. The new management team combines best practice financial expertise of more than four centuries of banking and finance in ADIB and domestic, regional and international banks. This highly qualified team, combined with a loyal staff base, provides ADIB with the ability to efficiently adjust to changing market conditions and to take advantage of growth opportunities as the Group pursues its strategy of becoming a top tier Islamic financial services provider.

The bank’s headcount now stands at 1,459 and it is particularly proud of the fact that by the end of 2009 its Emiratisation ratio was almost 40%.

Acknowledging the fact that ADIB has not been immune to the impact of the economic downturn, on behalf of the Board of Directors and the management team, Tirad Mahmoud, ADIB’s CEO, said: "Last year was an extraordinary year for financial services and the global economy, and like many others the impact of the economic downturn also affected some of our customers. Our new management team completed its second year in the Bank and our strong income momentum and sustainable growth saw operating profit increase by 16.5% to a record AED 1,527 million. It is this operational and strategic momentum, together with the Bank’s outstanding capital and liquidity position along with a commitment to best practice that prompted our preemptive decision to accrue substantial provisions. This decision will ensure sustained growth into the future. Without our loyal customers, shareholders and staff, as well as the Federal and Abu Dhabi government support in 2009 we would not have been so well positioned to be proactive. Banks that undertake quick and decisive action in economic downturns come out of the cycle best positioned for rapid growth. We recognize that this is an unprecedented decision and have no doubt that it will prove defining of ADIB’s new strength." "In the two years since the new management team took over at ADIB total credit provisions and impairments have increased to AED 2,180 million from AED 403.4 million at the end of 2007, as the portfolio of old investments and credits from the past five years have been prudently reviewed. We now have strong risk management in place and have established two remedial management units working with those customers who are in genuine difficulty to assist them in restructuring their financing in a manner which will be of mutual benefit. Where this fails we have a responsibility towards our shareholders to use the full scope of remedies that are available to us, including resorting to the justice system to collect past dues. In this regard we believe in the right of customer confidentiality and will continue to maintain our policy of not discussing the affairs of individual customers in public." Commenting on the performance of other Group companies besides the core Bank business, Tirad said: "We are pleased to report that ADIB’s stock-brokerage subsidiary, Abu Dhabi Islamic Financial Services, posted a profit of AED 5.1 million for 2009. This represents a significant turnaround after ADIFS posted a loss of AED 4.2 million in 2008 and against a profit of AED 11.8 million in 2007. ADIFS is now an agency only business and its performance in 2009 reflects our commitment to building a strong customer orientated franchise. ADIFS is now both the 6th largest share brokerage house overall and largest Sharia’a compliant broker, by market share, in the UAE and we expect it to continue to grow in status in 2010 as our new trading and settlement platform goes live in the first quarter and the new management team takes control.

Turning to Burooj, the Group’s real estate subsidiary, this had a profitable fourth quarter posting a net profit of AED 12.8 million after booking a net capital gain on the sale of real estate developments, culminating in a net loss of AED 29.7 million for the full year. While this stands in contrast with the profit of AED 62.2 million Burooj posted in 2008 and AED 108.6 million in 2007, it reflects the continued downturn in the real estate sector. We expect the next year to remain challenging for Burooj, although we anticipate a return to profitability in 2010." Providing guidance on the Bank’s direction for 2010, Tirad said: "ADIB ended its 11th year of operations well positioned for its next stage of growth as we align our brand proposition with all of our stakeholders’ needs. While the brunt of the legacy portfolio’s cost of credit has been absorbed in 2009 we don’t rule out the need to take further measures and, depending on how the credit and investment environment evolves, this may include further credit provisions and impairments. Notwithstanding this, we are confident that 2010 will see a restoration of profitability.

Moreover, the strength of the Bank is now well established and we are building a diversified business that will deliver Shari’a inspired solutions to our customers. Specifically: We expect to grow our Retail Banking presence across the UAE, where our target is 70 branches by year end, thereby giving us the necessary network scope to drive our growth.

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