Compare and contrast- ADCB and NBAD

By: Mike Gallagher

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NBK Capitals MENA Equity Research team have released a couple of analysts notes on Abu Dhabis two biggest banks, ADCB and NBAD. They make for interesting reading because there have been rumours (not mentioned in the analysts note) that say both banks might merge, although when it happens is another matter.

Abu Dhabi Commercial Bank (ADCB) reported a net profit of AED 448 million ($121.9 million) in the third quarter of 2008, a 26 per cent year-on-year drop. The net profit for the first nine months of 2008 reached AED 1.6 billion ($435.5 million), a 2 per cent over the same period last year. ADCBs income statement was hit by an impairment provision of AED 208 million ($56.6 million) on its investment portfolio in the third quarter of 2008. ADCB was one of the few banks that disclosed its exposure to instruments that were affected, directly or indirectly, by the problems in the US subprime mortgage market. NBK said its prior assumption on ADCB's total additional provisions on such instruments stood at AED 247 million ($67.2 million) to be divided equally between the second half of 2008 and 2009. Excluding provisions on such instruments, ADCB achieved a net profit of AED 656 million ($178.5 million) in the third quarter of 2008, in line with NBKs income before provisions forecast of AED 642 million. Lending growth was strong as net loans expanded by 13 per cent in the third quarter of 2008 to reach AED 103.1 billion ($28 billion), slightly ahead of the AED 102 billion that NBK have forecast for December 2008. Next door, National Bank of Abu Dhabi (NBAD) reported a net profit of AED 651 million ($177.2 million) for the third quarter of 2008, a 13 per cent year-on-year increase and 5 per cent below NBKs forecast of AED 687 million. Net profit for the first nine-month of 2008 reached AED 2.5 billion ($680.6 million), 43 per cent over the same period last year.

Net interest income expanded by 42 per cent in the first nine months of 2008, ahead of NBKs analysts 34 per cent growth forecast for the whole year, with the difference primarily resulting from quicker lending growth and weaker deposit growth than initially forecasted. Income from fees and commissions grew by 48 per cent in the first nine months of 2008, slightly ahead of NBKs 45 per cent growth forecast for the whole year. Costs expanded by 45 per cent in the first nine months of 2008, said the analysts note, slightly below their 48 per cent growth forecast for the whole year. The cost-to-income ratio stood at 27 per cent in 9M2008, below the bank's medium term cap of 35 per cent. Net loans grew by 6 per cent in the third quarter of 2008. Lending growth has been quicker than initially forecasted with net loans reaching AED 112.5 billion ($30.6 billion) in September 2008, reflecting a 41 per cent increase in the first nine months of 2008, already surpassing our 40 per cent growth forecast for the full year, the NBK note said. Deposits expanded by 9 per cent in the third quarter of 2008 to reach AED 97 billion ($26.4 billion) in September, reflecting a 19 per cent increase in the first nine months of 2008 compared with NBKs 33 per cent growth forecast for the full year. We believe these are solid results and we reiterate our favorable view on NBAD, the notes said. NBK said they would issue an update report on ADCB and NBAD taking into account the results and other major developments happening in the UAE banking sector in due course.