Manama, Bahrain: Arab Banking Corporation today announced its consolidated Group results for 2008.
ABC's results have been impacted by the waves of adversity that began in April 2007 with the sub-prime mortgage crisis in the USA which led to a global financial crisis during the first half of 2008 and affected the real economies, first of developed nations but quickly all economies of the world, by the end of 2008. Recently, these profound changes have had severe knock-on effects in the GCC nations, depressing energy prices, stock and property markets and consequently retail and government spending.
Total operating income for the fourth quarter amounted to US$140 million, slightly below the total of US$148 million generated over the third quarter. Earnings from equity funds and interest margin from lending activities were slightly reduced because of the low interest rate environment and a pullback in loan volumes. At the same time operating expenses declined to US$84 million, 6% less than in the third quarter. Operating profit before impairment provisions totalled US$53 million, US$6 million less than in the third quarter. Impairment provisions totalled US$81 million, relating to ABC's conservative assessment of the increased risk, particularly over exposures in the GCC countries. Net loss for the fourth quarter after recognition of impairment provisions amounted to US$28 million.
The Group’s net profit for 2008 before impairment provisions totalled US$175 million, compared with US$261 million recorded for 2007, excluding the exceptional gain of US$94 million from the Banco ABC Brasil IPO in 2007. In the face of severe adversities, this level of 2008 profit before impairment provisions reflects ABC's solid underlying performance from core wholesale business activities as well as ABC's growing retail banking activities across North Africa and the Levant. Impairment provisions for the year totalled US$1,055 million mainly from the first half of 2008 when the Group made a clean sweep of its exposures to structured investment vehicles (SIVs) and collateralised debt obligations (CDOs), setting aside US$733 million. Also during the first half of 2008 ABC exited all its investments in hedge funds. Additional impairment provisions were required in the second half of 2008 to respond to further deteriorations in GCC and international financial markets. The Group's overall result for 2008 was a net loss of US$880 million.
Shareholders’ equity at 31 December 2008 stood at US$1,793 million after absorbing the loss for the year, compared with the total of US$1,867 million in December 2007, and following the increase in ABC’s paid up capital in June 2008 through a rights issue from US$1 billion to US$2 billion. ABC’s capital base therefore remains strong and at 31 December 2008 ABC's capital adequacy ratio, calculated on the basis of the Basel II capital adequacy regime stood at 16.2%, predominantly Tier 1, which totalled 12.9%. At the same time, ABC’s liquidity is also comfortable, with the liquid assets to deposits ratio at 68%, compared with 72% at the 2007 year end ABC continues to enjoy the support of its major shareholders: Kuwait Investment Authority, Central Bank of Libya and Abu Dhabi Investment Authority, who together hold 86.8 per cent of ABC's shares.
ABC's balance sheet contracted during 2008 to total US$28.5 billion at the year end, down US$4.3 billion over the year, mainly because of $2.9bn decline in securities holdings due to exit, run-offs and the adjustments required in provisioning. Placements with banks and financial institutions also fell $1.3bn in line with the shrinking inter-bank market. The strengthening of the US dollar against euro and Brazilian real also contributed to decline in volumes in dollar terms.
Mr. Mohamed Layas, Chairman of ABC, remarked, “2008 was undoubtedly a difficult year, given the succession of crises that enveloped the international financial markets and the global economy. With the support and assistance of its shareholders, particularly in the speedy conclusion of the rights issue during the second quarter of 2008, ABC has weathered this turbulent period. I am confident that ABC will continue to withstand the challenges that lie ahead.”
Mr. Hassan Juma, President & Chief Executive of ABC, said, “The difficulties we faced in 2008 should not detract from the demonstrable stability of the Group’s core earnings stream, established over nearly three decades of financial service in trade, project, corporate and Islamic finance across the GCC and through our international network, and our corporate and retail banking network spreading across North Africa and the Levant.
“In recent years ABC has sought to reposition itself more into the Arab world and has been facing intense competition from global wholesale and investment banks and rapidly growing locally-based universal banks. ABC’s Board of Directors fully recognized the need to review the Group’s business model and the need to redefine both goals and strategy, and decided to embark on a radical transformation journey with multiple dimensions.
“The goal is to create a Group that, within a few years, will generate a meaningful part of its revenues from universal banking – providing banking services to retail customers and the small to medium size enterprise market – whilst the rest will continue to be generated from its traditional international wholesale banking activities. This goal is highly demanding and requires seismic changes in our business focus, our culture and our organization. Our new vision is to become a leading Universal Bank in MENA that delivers superior shareholder returns, provides distinctive service and products to its customers and is able to attract, develop and retain top talent.