Abu Dhabi Commercial Bank (ADCB) is pulling back from international markets and focusing on domestic growth as bad loans rise and it tries to curb expenses, the lender said in an updated prospectus for a bond programme launched three years ago.
ADCB sold a stake in RHB Capital, a Malaysian bank, this year and is now pursuing a strategy that zeroes in on the local market while taking advantage of selected international opportunities, according to the prospectus.
"ADCB sold its [24.9 per cent] holding in RHB in order to focus on its strategy of being a UAE-centric bank," the document said, although it added ADCB was "prepared to take advantage of international opportunities, should suitable ones arise".
The update follows a pickup in bond sales across the Gulf. Qatar last month sold US$5 billion (Dh18.36bn) of bonds, the largest such issuance this year, after major sales from the Abu Dhabi Government-owned International Petroleum Investment Company and Abu Dhabi Islamic Bank. But Gulf companies and governments have had to contend with a difficult global market for their debt as economic woes continue in Europe and the US.
ADCB sold its first sukuk last month, a $500 million issue, but the bank said the update to its prospectus did not portend further sales.
"This filing is done to keep the programme updated, and ADCB currently has no plans to tap the wholesale markets," Kevin Taylor, the bank's treasurer, told Bloomberg News.
Among a number of revelations, the bank, the UAE's third-largest by assets, said in the prospectus that a large portion of its loans and deposits were held by a small number of customers.
While ADCB has a customer base of more than 500,000 individuals and companies, the 20 largest depositors account for 45 per cent of its deposits. Moreover, its 10 largest "group exposures" account for about a third of its loans.
Such concentration was somewhat worrying because of the risk it posed to the bank's profits and financial health should one of those key customers run into difficulties or decide to place deposits with another institution, banking analysts said.
"This is a risk, and this is something ratings agencies look at as well," said Jaap Meijer, the head of banking research at HC Securities in Dubai. "Concentration is pretty important."
As part of its strategy, ADCB is trying to "improve its market share in the retail banking sector by increasing its level of current and savings deposits", to provide a "more stable funding base".
The bank also appears to be relying increasingly on outsourcing to cut costs. While its staffing remained level for the first nine months of this year, it "restricted hiring during 2009 and 2010 in line with the slowdown in the economy and to control its operating costs", the prospectus said.
"The total number of outsourced workers as at 30 September 2011 was 1,933 as compared to 1,475 as at 31 December 2010," the documents said.
The bank also revealed that non-performing loans - lending on which customers have either defaulted or missed payments - stood at about Dh7bn at the end of September, or 5.4 per cent of its loan book. That figure was in line with analysts' estimates, but did not include "impairment allowances" of Dh1.8bn taken this year to cover more potential losses or exposures to Dubai World.
ADCB made provisions of Dh921m as of the end of September against Dh6.6bn of exposure to Dubai World. The government-owned conglomerate sealed a $24.9bn debt restructuring this year, and ADCB had one of the largest exposures to it among the UAE's banks.
Despite its challenges, however, Mr Meijer said ADCB was financially stable.
"I don't think their liquidity is actually so bad," he said. "They're certainly not the worst."
ADCB's Islamic bond sale last month and prospectus update this week have come as observers cast an increasingly wary eye over the UAE's lenders. Fitch Ratings, a global credit ratings agency, said in a report on Tuesday that continuing weakness in the global economy and slowing government spending in Abu Dhabi were "new headwinds" for local banks.
While acknowledging that banks remained profitable, Fitch said the UAE was "not immune" to economic problems in Europe and elsewhere, pointing to trade, tourism and services as sectors that could be impaired.
"Abu Dhabi has been cutting its spending on construction-related projects, owing to concerns about the significant oversupply in the real estate market, an increase in the emirate's financial commitments, and the slowdown in the global economy," the report said.
That could be a positive in the long run, but a "sharper-than-anticipated slowdown in the construction sector in Abu Dhabi could have some implications for the banks' asset quality in the short term", the report said.
ADCB's third-quarter profit this year almost doubled to Dh607.6m. Its stock, which is listed on the Abu Dhabi Securities Exchange, traded up 0.69 per cent yesterday to close at Dh2.93.