ADIB, the largest Shariah-compliant bank in Abu Dhabi, posted a 10.1% year-on-year rise in first-quarter net profit to 450.8mn dirhams ($122.8mn), helped by a 14.1% leap in group net revenues to 1.22bn dirhams.
Reuters/Dead Sea, Jordan
Abu Dhabi Islamic Bank will focus on winning more business in the UAE’s expatriate community this year as growth in the national banking sector slows, chief executive Tirad Mahmoud said.
Total UAE banking sector revenues rose an estimated 14% to $18.1bn last year but expansion shows signs of decelerating because of factors including the drop in oil prices and a moderate cooling of real estate markets.
“We believe that overall growth in consolidated revenues of all UAE banks has been significantly reduced,” Mahmoud told Reuters on the sidelines of a business conference in Jordan.
ADIB, the largest Shariah-compliant bank in Abu Dhabi, posted a 10.1% year-on-year rise in first-quarter net profit to 450.8mn dirhams ($122.8mn), helped by a 14.1% leap in group net revenues to 1.22bn dirhams.
Nevertheless, this marked a slight slowdown from revenue growth of 16.6% in 2014, and Mahmoud said he expected ADIB’s revenue growth this year to decelerate from last year.
A sign of the changing industry outlook is that some UAE banks are resorting to cross-border lending to keep growing, but this strategy has limits, Mahmoud noted.
ADIB’s net customer financing grew 13.3% year-on-year in the first quarter but decreased 0.9% from the previous quarter. Mahmoud attributed the fall to the timing of some facilities and ADIB’s decision to step away from some potential business that it did not think provided enough return on equity.
He predicted Islamic banking assets in the UAE would continue growing faster than conventional ones, however - the gap in growth rates would eventually narrow but only when Islamic assets neared 50%, versus about a quarter now.
ADIB created a base for its expansion among the UAE expatriate population with its acquisition last year of Barclays’ retail operations in the country. The Abu Dhabi bank agreed a 650mn dirham deal with the British lender and began migrating Barclays’ 110,000 customers in the country last September 1.
Key to the deal’s success was the ratio of Barclays accounts which ADIB could retain. Mahmoud said ADIB had budgeted to lose about 20% but ultimately only lost 2%, completing the onboarding process in three months, less than half the time it had expected.
This was achieved partly by minimising customers’ engagement in the onboarding - for example, they could keep their old card numbers - and by retaining the Barclays management team, he said.
ADIB’s international operations - it has presences in Britain, Saudi Arabia, Qatar, Iraq, Sudan and Egypt - are still too small to have a big impact on the bottom line but they are growing rapidly.
International revenues in 2014 were double those in 2013, and 2015 is expected to be double 2014, Mahmoud said.
ADIB, Dubai’s Emirates NBD and Egypt’s Commercial International Bank are in the running to buy Citigroup’s Egyptian consumer business and the bidding process is in its final stages, banking sources told Reuters. Mahmoud did not comment on this.
One challenge for Islamic banks in coming years will be liquidity management; Basel III regulations being phased in around the world require banks to have enough high-quality liquid assets, but there are not as many Shariah-compliant assets available as conventional ones. As a step towards addressing the liquidity issue, ADIB and National Bank of Abu Dhabi pioneered what they said was the Gulf’s first Shariah-compliant repo transaction in 2011.
ADIB is now working with governments in the Middle East to help them plan issuance of sukuk and other Islamic instruments that could be used as liquidity management tools. One country is likely to begin issuance this year and another next year, Mahmoud said without naming them.
