Abu Dhabi Commercial Bank rebounds from a loss after the sale of its stake in RHB Capital to Aabar Investments, but analysts caution that signs of growth are hard to find.
Bank creeps back into the black thanks to asset sale
A Dh1.3 billion asset sale helped Abu Dhabi Commercial Bank (ADCB) creep back into profit in the second quarter in the face of slender profits from the remainder of its business.
ADCB, the capital's second-biggest lender by assets, reported profit for the second quarter of Dh1.33bn (US$362 million) compared with a loss of Dh531m during the same period last year.
The profit was almost entirely accounted for by the one-off gain from the sale in June of a 25 per cent stake in RHB Capital, a Malaysian lender, to Aabar Investments for Dh1.31bn. The sale had helped the bank position itself for greater growth and resulted in a more stable capital base, said Ala'a Eraiqat, the bank's chief executive.
"In line with our UAE-centric growth strategy, ADCB agreed to sell its stake in RHB Capital in Malaysia to focus on operations in the UAE.
The sale of ADCB's stake in RHB Capital contributed significantly to our profitability for the quarter and more importantly resulted in improvement of the bank's capital adequacy and liquidity levels," he said.
The bank said it would seek shareholders' permission to conduct a share buyback worth 10 per cent of its total stock, equivalent to Dh1.7bn.
The sale of RHB had been a major contributor to the bank's bottom line, but a number of other signals were not positive, said Shabbir Malik, a financial analyst at EFG-Hermes.
"Selling it wasn't a bad idea," he said. "But if you take out the deal … their [numbers are] breaking even, or slightly negative."
A contraction in the bank's loan book and higher than expected provisions were also warning signs, he added. Net impairments fell 28 per cent to Dh935m, but remain high compared to other Abu Dhabi-based lenders.
Total loans and advances fell 5 per cent to Dh123bn during the quarter.
But operating income rose sharply, increasing 27 per cent to Dh1.4bn, reflecting increased business done since acquiring Royal Bank of Scotland's retail business last summer, an increase in fee income and lower lending costs.
However, operating costs also ticked higher, increasing 28 per cent to Dh560m. The bank attributed the rise to the expense of that acquisition.
The bank has reduced staff numbers by 51 since March to 3,813, the bank revealed in its statement.
During the quarter, the bank developed itself technologically by launching Mobi, a payments system that allows a customer to make payments for small purchases using their mobile phone number.
The system has since been rolled out to 22 restaurants, retailers and shops, including Il Forno, ActionZone and Bowling City, said Arup Mukhopadhyay, the bank's head of consumer banking.