ADCB posted a mixed set of results and the positives included the earlier than expected realisation of cost synergies, cleaning up the loan portfolio and increasing CASA (current accounts and savings accounts) contribution, through a deliberate reduction in expensive accounts, Monsef Morsy, co-head of research at Egyptian brokerage CI Capital told Zawya.
ADCB, Union National Bank (UNB) and Al Hilal Bank announced on May 1 that a three-way merger between the institutions had completed. The merger has created the third biggest bank in the UAE. (Read more here)
“With AED 417 billion of total assets and over 1 million customers, the Group is well-positioned to thrive in a highly competitive banking industry, and drive further shareholder value through greater efficiency and new opportunities,” Ala’a Eraiqat, Group Chief Executive Officer and Board Member said in a statement.
Cost synergies are expected to reach 615 million dirhams by 2021, of which 69 million have already been realised and CASA deposits have increased to 36 percent of total deposits at the end of June 2019, from 33 percent at the end of 2018, the bank said.
However, the provisioning for the coming two quarters could be high resulting in a huge year on year (y-o-y) drop on net income.
“The sharp quarter-on-quarter drop in Cost of Risk (CoR), coupled with the currently low NPL (non-performing loan) coverage ratio will entail a higher provisioning outlook for the coming two quarters and will likely bring 2019 expected net income in line with our estimate, implying a 20 percent y-o-y drop,” Morsy said.
ADCB’s CoR dropped to 0.7 percent in Q2 2019, compared to 0.72 percent at the end of 2018. While the NPL ratio dropped to 2.41 percent from 2.88 percent during the same period.
“We also flag that ADCB’s current capitalisation level of close to 16 percent would likely sustain over the medium term, as we see the bank will unlikely revise its moderate growth strategy, nor consider international expansions (requiring higher capital) on the medium term,” he added.
“We have a neutral rating on ADCB, warranting no upside from the current price level (2019 expected price to book at 1.5x on a sustainable return on equity of 14percent),” Morsy said.
(Reporting by Gerard Aoun; Editing by Seban Scaria)
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