The turnaround strategy of Abu Dhabi Commercial Bank (ADCB) put in place last year by its new chief executive, Eirvin Knox, has begun bearing fruit.
Profitability has improved remarkably on the back of higher income, lower costs and falling provisions.
The outlook for the rest of the year looks promising and the bank is poised to regain its position among the top banks of the country after falling back in the last two years.
New income streams have been identified and, interestingly, ADCB is spinning off its treasury and investment banking department into a separate division to focus on investment banking products and services.
Gulf News: The bank's net profit jumped 11 per cent in first half 2004. To what can the growth be attributed?Eirvin Knox: There's been a gradual improvement on the revenue side as we are getting good results from non-performing loans (NPLs) which used to be a drag on our financials. Our second quarter has seen a reduction in some of our costs levelling off and revenues picking up. Fee income has gone up with new business coming on.
We have seen good recoveries this year due to our aggressive programme to cancel exposures. This should continue for a while. The percentage has come down to single digits in line with other banks.
GN: So the turnaround strategy is now reaping rewards?EK: You could say it is the early result of the turnaround strategy with the impact beginning now. But there is a lot more to come. Many new products are planned for fourth quarter this year, at least half a dozen. So, with more sales and marketing, the results will be better.
GN: Is the low interest rate regime still impacting the bank?EK: Yes. ADCB is more reliant on interest income and as interest rates increase, it is positive for profitability. But the recent small increase in interest rates is still very low and has no impact. However, we have begun diversifying our income - to have a better mix of fee income and interest income.
GN: What about project financing?EK: You will see a change in this area. The bank will get aggressive in project finance deals to become a lead arranger. In the past, the bank has been in the second tier arranger list but now we are getting to the top tier in big ticket projects such as the Dolphin Gas project.
GN: What is the outlook for the rest of the year?EK: We expect better results because the external and internal environment is good. The UAE economy is healthy with high oil prices, many new projects are underway, there is the industrial development in Abu Dhabi and many factors make us feel positive. For the full year, we expect consistent growth and higher profitability.
GN: Is ADCB entering the mutual funds business?EK: Yes, we are planning to launch some funds, domestic and offshore. Our treasury and investment banking was part of the corporate banking division. But now it is being spun off into a separate division to offer a variety of investment banking products and services. We see a huge market for such services.
GN: What about branch expansion?EK: We are finalising an additional 3-4 new branches in the country. They should be opened by end of this year or early next year, taking our total branches in the UAE to 40 by next year. We may also relocate some existing branches.
We have no current plans to expand overseas and our focus is to strike alliances with banks in the region. Our two overseas branches in India are profitable, mainly handling NRI business.
GN: How is the emiratisation programme progressing?EK: It is progressing well. UAE nationals formed 13 per cent of our workforce in 2002. It is 20 per cent now and we will raise it to 25 per cent by the year end.
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