Bank ABC shows resilience in key areas amidst challenges

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Manama: Bank ABC (Arab Banking Corporation) announced its results for the first half of this year reporting a net loss of $67 million, attributable to the shareholders of the parent as a result of increase in loan loss provisions, largely related to a major client fraud case.

Overall for the first half, the bank’s 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).

Extensive measures on operating expenses helped offset the reduction in revenues to some degree, so that on an underlying pre-provision basis, the group achieved a net result of $114m compared to $133m last year. However, against this, a significant H1 ECL charge of $174m (H1 2019 $21m) largely as a result of a major client fraud, combined with the forward-looking nature of IFRS9, pushed the group to a net loss of $67m.

Despite the challenges the bank demonstrated strength and resilience in a number of key areas.

Client and transaction revenues have performed well, with many of its units posting total operating income levels of greater than 90 per cent of previous year comparatives.

Many key clients have been provided with support measures such as payment deferrals extending across approximately $1 billion of its consolidated loan portfolio.

The bank benefits from its long-standing reputation and proven track record and continues to act as a lead arranger in areas of debt capital markets and syndications on major conventional and Islamic financing transactions with approximately $12bn of debt origination facilitated in the first half.

Its payment and digital retail banking capabilities continue to expand, through AFS and digital mobile-only ila Bank, which showed exceptional growth of customer numbers and deposits under management.

The bank’s overall asset portfolio quality remains solid with sound credit underwriting standards, confirmed by extensive client level stress-testing reviews and recognised by reaffirmation of its BBB- rating with a stable outlook by Standard & Poor’s rating agency.

Its 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 16.3pc (comprising predominately Core Equity (CET1) at 16pc), LCR is 215pc and NSFR is 121pc.

Bank ABC’s group chairman Saddek Omar El Kaber said, “While the group has reported a net loss, this is an aberration caused by high ECL charges, with a large element comprising a single major client fraud. The group’s strong balance sheet and effective operating processes are demonstrating our strong capabilities to weather these conditions. Our underlying business in many markets and business lines remain robust, our capital and liquidity levels are strong, and our rating has been reaffirmed at investment grade.

“The board of directors would like to recognise the dedicated efforts of our employees during this period and would emphasise Bank ABC’s continuing focus on ensuring their well-being. We also express our thanks for the ongoing support of our regulators, shareholders and other stakeholders, which is critical to navigating the challenges ahead successfully.”

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