Manama, Bahrain: Arab Banking Corporation (B.S.C.), the international Arab bank based in Bahrain announced today a rights issue approved by its shareholders to double its paid up capital by way of raising US$1.0 billion in Tier 1 capital. At an Extraordinary General Meeting held on 29th April 2008 Arab Banking Corporation's shareholders approved an increase in the authorized capital of the bank from US$1.5 billion to US$2.5 billion and an increase in issued and paid up capital from US$1.0 billion to US$2.0 billion by way of a priority rights offering to existing shareholders.
ABC also reports a net loss of US$587 million for the first quarter of 2008, almost entirely driven by significant provisions taken against its exposure to structured investment vehicles (SIVs) and collateralised debt obligations (CDOs). As at 31st December 2007, ABC set aside provisions of US$272 million. However, during the first three months of 2008, the valuations of such exposures have declined in an unprecedented market environment, and ABC's net exposure to SIVs and CDOs of US$737 million has been marked down by US$599 million of provisions, covering approximately 87 per cent of the gross exposure. In view of the continuing uncertainties in the international financial markets, ABC also took measures in early March 2008 to exit its investments in hedge funds.
While solid underlying performance from core business activities was overshadowed by the severe negative factors in the financial markets, ABC generated total income for the first quarter of US$127 million (2007: US$138 million). Interest income at US$92 million (2007: US$65 million) was 42 per cent higher as a result of overall increased business activity and higher margins on its loan book in comparison with the same period last year. Although total non interest income of US$35 million (2007: US$73 million), has been depressed by significant mark to market declines on the Hedge Funds portfolio – resulting from market turmoil, other fee-based income sources including trade finance & forfaiting activities, project finance, Islamic financial services, corporate and retail banking, remain robust.
Operating expenses increased to US$87 million (2007: US$63 million) attributable to additional staff hired last year to enhance the Group’s growing business lines, cost of living increases, and additional costs linked to variable compensation schemes accruals. ABC’s cost income ratio as at the end of the first quarter of 2008 was 69 per cent (2007: 46 per cent).
Consolidated total assets reached US$31.3 billion at the end of March 2008 (2007 year end: US$32.7 billion). ABC’s securities’ portfolio, largely comprising highly liquid investment grade FRNs and securities guaranteed by US government agencies, marginally declined to US$11.9 billion, a decrease of US$1.7 billion or 12 per cent resulting largely from repayments and the mark downs of SIV and CDO exposures. Loans and advances increased to US$12.8 billion, up US$0.5 billion or 4 per cent as the lending portfolio continued to grow to meet customer demand. ABC’s liquidity remains strong, with the liquid assets to deposits ratio at 67 per cent (2007 year end: 72 per cent). The loans to deposits ratio increased marginally to 50 per cent (2007 year end: 46 per cent) as total deposits decreased to US$25.8 billion, a decline of US$1.0 billion or 4 per cent over the same period.
At the end of the first quarter, and after provisions, shareholders’ equity stood at US$1,606 million. ABC's capital adequacy ratio, calculated on the basis of the Basel 2 capital adequacy regime with which ABC has been compliant with since 1st January 2008, stood at 12.9 per cent on 31 March 2008, in comparison to 15.3 per cent at the 31 December 2007, calculated on the basis of the Basel 1 rules.
Commenting on these results and the rights issue, ABC's Chairman, Mohammed Layas, stated: “ABC's principal shareholders have demonstrated their steadfast support and confidence in ABC. Such prudent and appropriate reaction in a challenging period should enable ABC to remain committed to its vision to be the premier and most innovative international Arab financial group.”
As ABC moves into the second quarter and beyond, Mr. Hassan Juma, President & Chief Executive said, “Despite the ongoing challenging conditions in the financial industry, the Board and senior management took steps to restore ABC to its profitable path. The actions we announced today will further bolster our liquidity, mitigate our market-related exposures and strengthen our future earnings growth. We will focus relentlessly on fulfilling the long term needs of our clients and the aspirations of our shareholders.”