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Abu Dhabi, UAESunday 23 September 2018

ADCB shows the meaning of true investor relations

The third-quarter financial statement from the Abu Dhabi lender was also accompanied by valuable historical data allowing for detailed analysis

ADCB’s operating expenses rose 10 per cent in the fourth quarter to Dh800 million. Mona Al Marzooqi / The National.
ADCB’s operating expenses rose 10 per cent in the fourth quarter to Dh800 million. Mona Al Marzooqi / The National.

Following on last week’s article analysing the Q3 financial performance of Dubai Islamic Bank, Union National Bank and Mashreq,

on Wednesday I had a look at how the other banks are performing and was pleasantly suprised when I visited the Abu Dhabi Commercial Bank website.

The pleasant surprise was not that ADCB had its financials up; I would expect that given DIB, UNB and Mashreq all managed to. The surprise was that it provided a spreadsheet with its financials. But it also provides historical numbers. Astounding, this is true investor relations. For all companies that do this, I sal­ute you. For companies that don’t, please understand that investor relations isn’t just a link on your website to your financial statements.

Dear Securities and Commodities Authority: Please consider requesting all listed companies to provide their financials, including historical, on spreadsheets and make them available on their websites.

Back to ADCB. I’m impressed. Last week, I looked at the income statement and the quality of earnings. This week I’ll look at the balance sheet statement. First some checks. One of the important issues when looking at “deposits and balances due from banks”, which is one of the liquidity pools available to a bank, you need to also look at “due to banks”. If a bank has in the interbank market loaned US$100, this might look good, but if it has borrowed $100 from banks, then the net effect is zero. ADCB has Dh10 billion net due to it in the interbank market. ADCB has a further Dh21bn in cash and on deposit with central banks, usually also considered a high-quality liquidity pool. What does this mean? You have to look at it in terms of the customer deposits of Dh163bn. This means that ADCB’s high-quality liquidity pools are 19 per cent of customer deposits, which is fantastic.

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ADCB’s investment securities total Dh42bn, most of which are in bonds. I do not have a list of these bonds, but I can say that historically our banks usually invest high-quality bonds only. This is to some degree supported by the small percentage of investments in corporate bonds. This liquidity pool is not as good as cash, but I still consider it good. This brings coverage of customer deposits up to 45 per cent – excellent.

I would also like to point out that ADCB’s investments grew year-on-year 27 per cent to Dh42bn from Dh33bn. This is a big move. There was movement in other areas of the balance sheet, but the one that was most likely the source of the investment increase was the 46 per cent drop in due from banks to Dh13bn from Dh24bn. The way I interpret this is that ADCB went from a highly conservative stance, holding lots of cash, to one a little more moderate. This is likely because of ADCB’s reading that the market was stabilising if not improving. So if ADCB’s view was that external risk was decreasing then it would make sense to ensure revenue quality by moving out of cash into investments.

Here there are at least two possible interpretations. One is that ADCB has moved from cash to investments as a stepping stone to expanding the loan portfolio. Another could be that ADCB is seeing market stability. If ADCB’s view were that external risk was decreasing then it would make sense to ensure revenue quality by moving out of cash into international investments and hence it is exporting its asset book geographically to maintain earnings. Keeping an eye on the investment number will give some indication as to what ADCB sees in the market.

One-minute round-up

Shuaa Capital was reported to have approached Global Investment House (Global) of Kuwait to acquire a stake. It will be interesting to see how Shuaa aims to replace the business power of Global’s founders, Maha Al-Ghunaim and Bader Al-Sumait. But with Shuaa’s failure to enter the Bahrain market the Kuwait market might be a replacement, especially given it already has a foothold via its acquisition earlier this year of a stake in Amwal International Investment. As I delved further, I noticed that the CEO of Gulf Finance House (GFH), appointed earlier this year, has resigned from the board of Shuaa. It is not clear if this is linked to the breakdown in talks regarding a merger between Shuaa and GFH.

Sabah al-Binali is an active investor and entrepreneurial leader with a track record of growing companies in the Mena region You can read more of his thoughts at al-binali.com

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