Abu Dhabi Commercial Bank PJSC reports full year net profit of AED 3.809 billion

Abu Dhabi:– Abu Dhabi Commercial Bank PJSC (“ADCB” or the “Bank”) today reported its financial results for 2020[1] (“FY’20”) and the fourth quarter of 2020 (Q4’20).

• Steady operating performance, with lower cost of funds and an improved cost to income ratio cushioning the impact of low interest rates and subdued economic activity due to Covid-19 

Pro-forma highlights

• Q4’20 net profit of AED 1.007 billion and FY’20 net profit of AED 3.809 billion, equivalent to a return on average tangible equity of 9.4% and 8.3% respectively
• Q4’20 operating profit before impairment allowances of AED 1.990 billion was 5% higher sequentially. This was driven by improved cost of funds, lower operating expenses and a 16% rise in net fees and commission income, mainly from higher income from loan and card-related fees, reflecting increased economic activity
• FY’20 operating profit before impairment allowances held steady at AED 7.945 billion, compared with AED 7.977 billion in FY’19
• Operating expenses decreased 14% year on year to AED 4.526 billion, driven by aggressive realisation of merger synergies, reduction of the branch footprint to pre-merger levels, and a wider programme of digitisation and cost control measures. Cost to income ratio excluding one-off integration costs stood at 35.1% for FY’20, an improvement of 190 basis points over the previous year.
• The Bank continues to take a prudent approach to provisioning. Net impairment charges were AED 3.993 billion in FY’20, significantly higher than in the prior year, to reflect the challenging macro-economic environment and due to provisions taken on NMC Health Group, Finablr and associated companies

Robust balance sheet, with capital and liquidity positions improved and comfortably within regulatory limits. Current and savings account (CASA) deposits increased by AED 26 billion during FY’20 to account for 51% of all customer deposits at year end                        

• CASA deposits increased 25% in FY’20 to AED 127 billion as at 31 December 2020 and accounted for 51% of total customer deposits compared to 39% a year earlier, reflecting the Bank’s strong domestic franchise and a high level of customer loyalty driven by premium product and services. Total customer deposits decreased 4% year on year to AED 251 billion as at 31 December 2020, as the Bank continued to replace expensive time deposits, while the average deposit balance was AED 252 billion during the year
• Net loans decreased 4% year on year to AED 239 billion as at 31 December 2020, reflecting the low growth environment in the banking sector plus significant provisioning levels. The average loan balance was AED 245 billion during 2020
• Total shareholders’ equity stood at AED 57 billion as at 31 December 2020

• Capital adequacy (Basel III) and CET1 ratios improved to 17.22% and 13.91% respectively at the end of 2020 from 16.30% and 12.93% as at 31 December 2019
• Enhanced liquidity position, with liquidity coverage ratio (LCR) improved to 156.8% from 127.3% as at 31 December 2019, remaining comfortably above the current minimum regulatory requirement of 70%
• NPL ratio of 6.04% and provision coverage ratio of 94.3% while the coverage ratio with collateral was 151% as at 31 December 2020. Including net POCI (purchase or originated credit impaired) assets, the NPL ratio was 7.70%. Cost of risk was 1.45% for FY’20, or 1.00% when excluding for NMC Health and associated companies.

Fast-tracked integration completed in April 2020, only 11 months after legal merger with Union National Bank (UNB) and Al Hilal Bank. Strong progress made towards AED 1 billion synergy target for 2021 

• ADCB is on track to exceed its AED 1 billion run-rate synergy target in 2021 following strong progress in achieving merger-related efficiencies. In 2020, the Bank captured AED 917 million of synergies, ahead of its AED 750 million target for the year
• Total one-off integration costs (excluding capex) of AED 545 million incurred to date remain well below budget of AED 980 million

Marked increase in use of digital channels and new releases, creating strong foundation for implementation of ADCB’s new five-year growth strategy centred on digital transformation, efficiency and governance 

• Implementation of the Bank’s new five-year strategy will deliver significant efficiency gains beyond integration synergies, enhance governance and risk management, and drive the Bank’s digital transformation journey. Investment in digital and advanced analytics will focus on customer acquisition, engagement and experience, building on the success of ADCB’s digital platforms
• During 2020, the Group launched 62 digital releases, double the total in 2019. ADCB’s mobile banking app and onboarding app, Hayyak, are the highest rated of all UAE banking apps on Apple Store and Google Play Store
• Strong growth in usage of digital channels of Consumer Banking Group. In 2020, retail customer registrations on ADCB’s digital platforms increased 19%, digital transactions were up 14% and digital payments increased 28%. Customers onboarded through the Hayyak app more than doubled to 117,000+ in 2020, accounting for 69% of all new-to-bank customers in the year
• Clients registered for Wholesale Banking Group’s market-leading digital platforms, ProCash and ProTrade, increased 16% and 64% respectively in 2020. Meanwhile, 96% of total cash management transactions and 60% of trade finance transactions were conducted digitally

Digital transformation of Al Hilal Bank gained momentum, ADCB Egypt completed rebranding and experienced strong growth in FY’20 

• Al Hilal Bank is implementing the phased roll out of a detailed strategy to become the leading digital Islamic bank in the UAE, offering a wide range of Shari’ah-compliant products and services for retail customers
• Digital transformation at Al Hilal Bank gaining momentum. Customer registrations on digital platforms increased 74% in 2020. Digital payments increased 92% year on year in Q4’20 accounting for 83% of total customer financial transactions compared to 56% in Q4’19. Six-fold year on year increase in customers onboarded in Q4’20 through Al Hilal Bank’s Ahlan app, which won the accolade for best digital account opening in the Middle East in Digital Banker’s 2020 Global Retail Banking Innovation Award

• ADCB Group has exited its non-core overseas operations as the Bank reinforces its strategy to expand market share in the UAE
• ADCB Egypt rapidly built strong brand recognition and continued to expand its business despite the challenges of Covid-19. The ADCB brand was successfully rolled out across the footprint of 47 former UNB branches in August 2020. The Bank delivered a strong financial performance in FY’20, with net profit rising 14% to EGP 491 million. Net loans rose 32% to EGP 16.561 billion and customer deposits increased 14% year on year to EGP 29.084 billion 

Continuous engagement to help customers navigate through Covid-19 challenges and into recovery, combined with support for the wider community 

• ADCB has participated fully in the “Targeted Economic Support Scheme” (TESS) introduced by the Central Bank of the UAE to support the country’s economy. The Bank has offered a comprehensive package for individuals and businesses that includes deferment of loan instalments, reduced fees and charges, interest rate reductions and waivers, and rescheduling of working capital facilities
• The Bank’s active engagement with customers has resulted in the successful transition of customers out of the deferral scheme. As at 31 December 2020, ADCB had extended a cumulative total of AED 11.018 billion under the TESS programme to support over 67,000 retail and corporate customers. Repayments of AED 4.819 billion have resulted in outstanding deferrals reducing to AED 6.199 billion as at 31 December 2020
• ADCB’s support for the wider community in 2020 included the provision of laptops to schoolchildren across the UAE to assist in remote learning programmes, and the launch of a “Not all heroes wear capes” campaign to express appreciation to frontline healthcare workers through the reversal of credit card payments for groceries

Positive progress towards NMC Health Group restructuring and provisioning levels reflect potential for recoveries 

• ADCB took a pro-active approach to resolving issues relating to its exposure with NMC Health Group (NMC), filing a successful administration petition in the UK in April 2020 to take NMC’s UK parent company into administration after it had announced suspected fraud and previously undisclosed debt. The Bank’s actions safeguarded continuity of operations at NMC during the height of the Covid-19 pandemic and defended the interests of the Bank and key stakeholders. NMC’s local subsidiaries also filed for voluntary administration in the ADGM in September 2020
• ADCB continues to work closely with the joint administrators of NMC and other creditors on a restructuring plan that seeks to preserve and build value at NMC
• In FY'20, the Bank recorded significant provisions and interest in suspense (AED 1.656 billion) on NMC, Finablr and other NMC associated companies. The Bank is comfortable with these provisioning levels, which are in line with independent assessments on value and recoverability, given the positive developments in NMC recent financial performance and its ongoing restructuring process
• NMC adopted a three-year business plan under the auspices of the ADGM-regulated administration and its financial performance has made measureable progress in H2’20. ADCB, together with a syndicate of lenders, participated in a US$ 325 million Administration Funding Facility (AFF) to ensure operational continuity of NMC and to pave the way for restructuring. Participation in the AFF has placed the Bank in a stronger position to maximise the potential for its recoveries
• NMC’s restructuring plan is scheduled for approval by creditors in H1’21

The Board of Directors has recommended a cash dividend of AED 0.27 per share, translating to a pay out of AED 1.878 billion, equivalent to 49% of net profit.

Khaldoon Al Mubarak, Chairman of the Board of ADCB, commented:

“In testing times, ADCB has drawn on its strengths – a robust balance sheet, disciplined governance and a high-performance culture – to navigate the complex issues raised by the global pandemic, softening global economic activity and low oil prices.

Our priority through this difficult period has been to extend support to our communities in many forms. In particular, ADCB was the first bank to introduce a wide-reaching relief package for customers, in conjunction with the UAE Central Bank’s TESS programme, which has provided individuals and businesses with a clear route to stability and recovery.

Meanwhile, the Bank also completed its fast-tracked integration with Union National Bank and Al Hilal Bank in April 2020, within only 11 months of the legal close of the merger. As a unified, powerful and streamlined banking group, ADCB is now embarking on a five-year strategy centred on accelerated digital transformation, which will elevate customer experience and enhance efficiency further.

An unwavering commitment to best-practice governance has served the Bank well through successive market cycles and remains critical to its fortitude and growth. As the UAE takes prudent measures to establish a solid platform for a broad recovery, ADCB is in a strong position to play a key role in delivering the country’s economic ambitions in the coming years.

On behalf of the Board, I would like to take this opportunity to express appreciation for His Highness Sheikh Khalifa Bin Zayed Al Nahyan, the UAE President and Ruler of Abu Dhabi, His Highness Sheikh Mohamed Bin Zayed Al Nahyan, Crown Prince of Abu Dhabi and Deputy Supreme Commander of the UAE Armed Forces, His Highness Sheikh Mansour Bin Zayed Al Nahyan, Deputy Prime Minister and Minister of Presidential Affairs, and the UAE Central Bank for their continued support for ADCB and the future development of the UAE economy. We also extend our gratitude to shareholders, our valued customers, and the ADCB executive management team and employees for their continued dedication and commitment.”

Ala'a Eraiqat, Group Chief Executive Officer and Board Member, commented: 

"At a time when stable and powerful institutions are needed to support our businesses and communities through unpredictable challenges, I am pleased to report that ADCB has remained resilient during a challenging year and has emerged as a stronger banking group.

Faced with the significant impact of Covid-19 on economic activity, the Bank focused on continuity of service excellence, accelerating digital transformation and maximizing efficiencies. The result was a solid performance, with operating profit before impairments holding firm at AED 7.945 billion for the full year and rising 5% sequentially in the fourth quarter to approach pre-Covid levels. Our balance sheet remains robust, with our capital and liquidity positions improving through 2020, and ADCB’s high investment grade ratings were reaffirmed by S&P Global and Fitch Ratings in December.  

The Bank benefited from an improved cost of funds, which was enhanced by our focus on increasing current and savings account (CASA) deposits to reach 51% of total deposits at the end of 2020, compared with 39% a year earlier. We also continued to capture significant merger efficiencies, upgrading our final run-rate synergy target to AED 1 billion from the original aim of AED 615 million, while introducing additional cost optimisation measures. As a result, operating expenses excluding integration costs decreased by 11% in 2020 and the cost to income ratio improved by 190 basis points to 35.1%.

Our efficiency drive was facilitated by acceleration of digital transformation, which has enhanced customer service and streamlined internal processes. We have taken on board the experiences of 2020 to modify our operating model, rationalising our branch network to pre-merger levels and increasing the pace of new digital releases. This is delivering tangible results, with our Hayyak app onboarding over 100,000 new customers to the Bank in 2020. A detailed roadmap for investment in next-generation digital services and analytics is one of the central pillars of ADCB’s new five-year strategy.

The focus and commitment of our employees has been at the core of ADCB’s response to the significant challenges in 2020. In difficult circumstances, our teams ensured continuity of service during lockdown, launched a support package for customers, completed the final phase of the integration of UNB and Al Hilal Bank into the ADCB Group, reinforced our governance and risk framework, and took decisive action to protect the Bank and its stakeholders when issues related to NMC Health Group emerged.

As we build the bank of the future, we will continue to invest in our employees to ensure the organisation is well equipped for rapid change. True to our legacy of promoting home-grown talent, the Group employs approximately 1,500 Emiratis and consistently exceeds the Emiratisation targets set by the UAE Central Bank. Throughout 2020, we continued to recruit and train high-calibre UAE nationals in preparation for a central role in implementation of the Bank’s strategy and digital transformation.

As we enter 2021, we are thankful for the support and leadership of the government and UAE Central Bank, which has built significant resilience in our communities. As a major financial institution in the UAE, ADCB is proud to support the continued investment in social and economic initiatives undertaken to promote the nation’s sustainable growth.”

-Ends- 

 ∗ Subject to approval by shareholders at the Annual General Meeting

¹ The results for FY’19 are based on the pro forma financial statements for the combined entity, following the merger between ADCB and

  Union National Bank (UNB) and the subsequent acquisition of Al Hilal Bank on 1 May 2019

© Press Release 2021