- Bank ABC continues to weather the unprecedented market conditions with strong balance sheet, robust underlying business revenues and pre-provision profits of $191 million, improved from $114m at the end of H1
Manama, Bahrain: Bank ABC (Arab Banking Corporation B.S.C.) - Bahrain Bourse Trading Code “ABC” - today announces its results for the first nine months of 2020, showing signs of some recovery from the unprecedented and deeply challenging trading conditions encountered during H1 2020, while a number of the challenges encountered in the first half continue to impact our results.
The Group started the year well with a strong balance sheet and good client transaction pipeline as we continued our digital and wholesale bank transformation. However, as the year progressed, our plans were heavily impacted by the unique combination of Covid19, collapse in oil prices and consequent economic and market pressures, together with the emergence of some major fraud cases which significantly affected Loan Loss Provisions.
In Q3, the underlying business performance in most units picked up, although the emergence of ‘second wave’ in many geographies continue to pose a risk of disruption to the fragile signs of recovery. Overall business and client revenues held up well, while net interest margins were impacted by falling interest rates, and Brazilian Real depreciation created a significant translation impact on revenues from Banco ABC Brasil (“BAB”). In response, extensive measures were taken on operating expenses to offset the reduction in revenues to some degree, so that on an underlying* pre-provision basis, the Group achieved a net result of US$191 million compared to US$210 million in 2019. However, against this, a significant nine months ECL charge of $234 million (Q3 2019 $46 million), largely as a result of a major client fraud, combined with the forward-looking nature of IFRS9, has led to the Group reporting a net loss of $56 million.
Expanding further on our underlying nine months performance, Bank ABC has demonstrated resilience in a number of key areas:
- Client and transaction revenues have performed well, with many of our units posting total operating income levels of around 85% of previous year comparatives.
- Many key wholesale and retail banking clients have been provided with support measures such as payment deferrals extending across approximately US$1 billion of our consolidated loan portfolio.
- Bank ABC’s reputation and standing have allowed us to continue to act as a lead arranger in areas of debt capital markets and syndications on major conventional and Islamic financing transactions with approximately US$19 billion of debt origination facilitated in the first nine months .
- Our payment and digital retail banking capabilities continue to expand, through Arab Financial Services and our new digital, mobile-only ila Bank launched in Q4 2019, which showed exceptional growth of customer numbers and deposits under management.
- Our overall asset portfolio quality remains solid and our credit underwriting standards are sound, which has been confirmed by extensive client level stress-testing reviews; and the ‘one-off’ nature of client related fraud impacting our ECL has been recognised by our rating agencies reaffirming our most recent ratings with a stable outlook.
- Bank ABC’s balance sheet is strong with excellent capital and liquidity levels, which have been further bolstered by the retention of the 2019 dividend. On Basel III basis, Group Tier 1 ratio is 16.5% (comprising predominately Core Equity (“CET1”) at 16.2%), LCR is 266% and NSFR is 120%.
Over the rest of 2020, the Group will continue to prioritise measures to restore profitability in a new normal operating environment characterized by low interest rates, low oil prices and constrained operating conditions, while stabilising ECL charges.
Bank ABC's Group Chairman, Mr. Saddek Omar El Kaber, commented that “Q3 results show our significant capacity to weather extreme volatility. Against the backdrop of the pandemic and other market uncertainties, we have been able to maintain a strong balance sheet, excellent liquidity and effective operating processes. We will continue to adapt our business model by further reducing our operating costs and increasing our focus on fee generating businesses of the Group. Likewise, our digital transformation will remain a key driver in moving us to the Bank of the future. “
A more detailed summary of nine months Financial Results explained below:
Q3 2020 Business Performance
- Consolidated net profit attributable to the shareholders of the parent, for the three months of Q3 2020 was US$11 million, compared to a net profit of US$49 million reported for the same period last year.
- Earnings per share for the period was minimal, compared to US$0.02 in the same period in the previous year.
- Total comprehensive income attributable to the shareholders of the parent was US$38 million compared to US$17 million reported for the same period last year.
- On a headline basis, total operating income was US$188 million, 4% lower compared to US$196 million reported for the same period last year. On an underlying basis,* total operating income was at US$212 million for the period, compared to US$218 million for the same period last year.
- Net interest income was US$130 million, 8% lower against US$142 million reported for the same period last year, after absorbing the impact of declining interest rates and FX depreciation.
- Operating expenses were at US$113 million, 11% lower than US$127 million for the same period last year, benefiting from the cost savings initiatives during the year, while reprioritising the continuing investments into the Group’s digital transformation and strategic initiatives.
- On an underlying* pre-provision basis (adjusting for FX, tax and other factors), the Group achieved a net result of US$71 million compared to US$74 million in 2019.
- Impairment charges (ECL) for the period were US$60 million compared to US$25 million reported for the same period last year.
Nine months 2020 Financial results
- Consolidated net loss attributable to the shareholders of the parent, for the nine months of 2020 was US$56 million, compared to a net profit of US$161 million reported for the same period last year.
- Earnings per share for the period was at US$-0.02, compared to US$0.05 in the previous year.
- Total comprehensive loss attributable to the shareholders of the parent was -US$358 million compared to total comprehensive income of US$176 million reported last year, reflecting the net loss and significant market volatility during nine months 2020 from Brazilian Real depreciation of 21% and unfavourable movements in fair value of debt instruments.
- Equity attributable to the shareholders of the parent at the end of the period was at US$3,675 million, 9% lower compared to the US$4,031 million at the 2019 year-end.
- Total assets stood at US$29.5 billion at the end of the period, 2% lower compared to US$30.1 billion at the 2019 year-end.
- Loans and advances were at US$14.9 billion at the end of the period, compared to US$16.5 billion at the 2019 year-end, a reduction of 9% on a headline basis. However, adjusted for BRL depreciation impact, the Loans and advances were only 1% below last year, reflecting slightly weakened demand and a more prioritised asset selection given the prevailing conditions.
Nine months 2020 Business Performance
- On a headline basis, total operating income was US$428 million, 32% lower compared to US$633 million reported for the same period last year. However, it should be noted this is before the effect of normalising adjustments due to currency hedges in Banco ABC Brazil and before FX depreciation. On an underlying basis,* total operating income was at US$601 million for the period, 92% of US$652 million for the same period last year, reflecting resilience across most of our markets and business lines.
- Net interest income was US$382 million, 9% lower against US$421 million reported for the same period last year, after absorbing the impact of declining interest rates and FX depreciation.
- Operating expenses were at US$360 million, 6% lower than US$384 million for the same period last year. Cost savings initiatives have been undertaken, while reprioritising the continuing investments into the Group’s digital transformation and strategic initiatives.
- On an underlying* pre-provision basis (adjusting for FX, tax and other factors), the Group achieved a net result of US$191 million compared to US$210 million in 2019.
- Impairment charges (ECL) for the period were US$234 million compared to US$46 million reported for the same period last year. The sharp increase in ECL arising from application of IFRS 9 to the portfolio under the stressed macroeconomic conditions was exacerbated by a major client fraud which affected many banks in the region. While the situation is complex and still developing, it is becoming apparent that there are sophisticated schemes and systematic high-level collusion to defraud banks, mislead auditors and obfuscate significant undeclared debt levels.
- Leaving aside fraud related elements, Stage 3 ECL charges remain well contained and in line with our past experience. An increased ECL charge on Stage 1 and 2 is also in line with industry trends taking into account Covid 19 conditions given the forward-looking nature of IFRS9.
- The ratio of impaired loans to gross loans was at 5.1% compared to 2019 year-end levels of 3.7%, the increase largely attributable to the fraud cases noted above. The ratio normalises to 4.2%, when long-standing legacy fully provided loans are adjusted for.
- Notwithstanding these challenging conditions, the Group’s overall asset portfolio quality remains solid and our underwriting standards are sound.
- Deposits were at US$20.4 billion, compared to the levels of US$21.0 billion at 2019 year-end, the reduction primarily attributable to the BRL depreciation referred above. Despite the prevailing conditions, our deposit experience remained steady underscoring the confidence of our clients. Our efforts to diversify and improve the quality of our deposit base continue.
- Liquidity ratios are strong with LCR and NSFR at 266% and 120% respectively with comfortable buffer and liquid assets to deposits ratio healthy at 53% improved from 51% at 2019 year-end.
- Capital Ratios strong: CET1 at 16.2%, Tier 1 at 16.5% and total capital adequacy ratio (CAR) 17.5%.
Bank ABC is a leading player in the region’s banking industry and provides innovative wholesale financial products and services that include corporate banking, trade finance, project and structured finance, syndications, treasury products and Islamic banking. It also provides retail banking services through its network of retail banks in Jordan, Egypt, Tunisia and Algeria and through its new mobile-only bank in Bahrain.
The full set of the financial statements and the press release are available on Bahrain Bourse’ and Bank ABC website.
*’Underlying’ basis referred above calculated after adjusting for normalization of tax treatment of currency hedges in BAB which have an offsetting effect between Income and tax, FX depreciation and other one-off exceptional items. Further details are explained in the Investor presentation available on Bank ABC website
For more information please contact
Manama, Kingdom of Bahrain
tel. +973 17543223 or fax +973 17531311
© Press Release 2020
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