Top Abu Dhabi Islamic Bank Is Undeterred by Damage From Pandemic

The biggest Islamic bank in Abu Dhabi is striking an upbeat tone despite emerging from the global pandemic with one of the highest shares of bad loans among its peers.

Abu Dhabi Islamic Bank PJSC came out “fairly undamaged” from a program of loan deferrals rolled out as part of the UAE central bank’s relief effort during the outbreak, according to Mohamed Abdel Bary, the lender’s group chief financial officer. Known as ADIB, the bank is seeing “no significant pressure” on clients as they weather the pandemic, he said in an interview.

The regulatory measures bought time for banks by freeing up liquidity and ensuring access to funding as the UAE economy came under strain from the twin shock of the coronavirus and lower oil prices. But with the program set to expire at the end of the year, local lenders have been setting aside more money in preparation for the likely deterioration in asset quality.

In the case of ADIB, non-performing loans already rose to almost 9% of the total last quarter, according to Bloomberg Intelligence, the second-highest among banks in the region that have published financial statements for the period. That’s up from 8.4% in the previous three months and compares with an average of 7.5% for UAE-based banks in the second quarter, according to the International Monetary Fund.

Top Abu Dhabi Islamic Bank Is Undeterred by Damage From Pandemic

Relative to many of its peers, ADIB has been allocating less money when provisioning for bad loans, according to Bloomberg Intelligence. Impairment charges totaled 245.5 million dirhams ($66.8 million) in the third quarter, down almost 24% from the previous quarter. Credit provisioning is still up 73% in the first nine months compared with last year.

The bank has “been watching very closely” the clients who have been offered to delay payments, according to the CFO. The decline in provisioning shows the bank is “on the right trajectory,” he said in a separate interview with Bloomberg Television.

“It’s a reflection of how the market has started to move,” he said.

But the risk is that lenders can become more vulnerable once stimulus measures expire. S&P Global Ratings has warned of an extended period of reduced profitability for banks the region, predicting their asset quality may deteriorate at a faster rate when the regulatory forbearance measures are lifted.

“It is early to conclude on the state of deferred loans in the UAE as bad loan formation could be delayed by the monetary support program that ends in December,” said Bloomberg Intelligence analyst Edmond Christou. “Still, we believe that banks with soft coverage are likely to sustain provisioning given persisting pressure on collateral value.”

CFO also said:

  • “If we are to decide to grow inorganically, it has to be an opportunity which makes sense for ADIB as a franchise. It has to make sense for who we stand for, who we are, what we believe in and where we want to go.”
  • The bank isn’t ruling out transactions with any specific sector
    • “Everything will be looked at. However, we do take into consideration whether these specific deals fit into our risk appetite.”
  • On the bank’s exposure to Abu Dhabi hospital operator NMC Health Plc, the CFO said it’s taken “adequate provisions at this stage.”

©2020 Bloomberg L.P.

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