DUBAI - First Abu Dhabi Bank (FAB), the United Arab Emirates' biggest lender, reported a 25% fall in quarterly profit on Tuesday, dragged down by another quarter of higher impairment charges.

Banks in the region have been hit by the twin shock of the coronavirus pandemic and lower oil price, with most seeing their profits plunge in the second quarter as they book higher provisions for expected credit losses.

FAB's second-quarter net profit was 2.41 billion dirhams ($656 million) versus 3.22 billion dirhams a year earlier. It was flat compared with the first quarter.

Net impairment charges jumped 127% in the quarter to 1.06 billion dirhams from 467 million dirhams a year ago. In the first quarter, net impairment charges were 738 million dirhams, 81% higher year-on-year.

"In the context of a challenging and uncertain environment, we continued to build our provision buffers, leading to a substantial increase in impairment charges, while our high-quality portfolio and conservative asset mix are key differentiators," James Burdett, FAB's group chief financial officer, said in a statement.

FAB's cost of risk spiked to 108 basis points (bps) from 70 bps in the previous quarter and 49 bps a year ago.

Its capital adequacy ratio fell slightly to 16.4% from 16.9% a year ago. Its non-performing loans ratio edged up to 3.9% from 3.5% in the first quarter and from 3.1% last year.

The bank provided relief measures to customers in the second quarter in the form of payment deferrals on interest and principal worth over 8 billion dirhams, it said in the statement.

($1 = 3.6728 UAE dirham)

(Reporting by Yousef Saba; Editing by Edmund Blair and Mark Potter) ((Yousef.Saba@thomsonreuters.com; +971562166204))