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Arab Banking Corporation (ABC) announces third quarter results and the realignment of its banking model
2008-11-04

Manama, Bahrain: Arab Banking Corporation announced its third quarter results today, reflecting solid underlying performance from core business activities. It also announced that its banking model is being realigned to focus on rapidly building a significant Universal Banking business in North Africa and the Levant to enhance revenue generation capabilities to counteract increasing competition and streamline its integrated relationship-led Wholesale Banking business in the GCC, Europe and North America.

ABC’s operating results over the past three years vividly illustrate the achievements arising from the Group’s focus on trade flows and projects in the Arab region. ABC’s strengths in trade, project, corporate and Islamic finance have ably serviced the current business expansion in the region, whilst the development of retail, SME and commercial banking activities in the niche markets across North Africa and in Jordan continue to improve earnings capabilities.

Total income for the third quarter of US$148 million was 19% higher than the US$124 million reported for the same period last year (excluding an exceptional gain of US$90 million in July 2007 from the IPO at ABC’s subsidiary, Banco ABC Brasil).

Interest income at US$118 million was significantly higher than US$82 million for the same period last year from increased volume of loans. Non interest income totalled US$30 million compared with the US$42 million earned last year (excluding the gain from the Banco ABC Brasil IPO) mainly due to the mark to market of the trading securities portfolios.

Operating expenses totalled US$89 million for the quarter compared with the total of US$66 million for the same period last year, as there has been an increase in the number of employees to cater for increasing retail customer demand, and increases in staff variable compensation. ABC’s pre-provision cost income ratio for the third quarter of 2008 was 60%, compared with 53% for the same period last year (excluding the gain from Banco ABC Brasil’s IPO). 

During the quarter specific impairment provisions totalling US$184 million were made to take into account the significant market dislocations which resulted in the failure of major banks such as Lehman and Washington Mutual. Apart from specific impairment provisions, in line with ABC’s conservative provisioning policy, an additional collective impairment provision of US$50 million was also taken in view of the recent rapid deterioration in credit markets. After these provisions, the overall result was a net loss of US$194 million for the third quarter of 2008.

On a year to date basis at the end of the third quarter total income amounted to US$467 million, 9% ahead of the US$429 million reported for the year to September 2007 (excluding an exceptional gain of US$90 million in July 2007 from the IPO at ABC’s subsidiary, Banco ABC Brasil).

Interest income for the year to September totalled US$316 million, substantially ahead of the           US$216 million for the same period last year, arising mainly from increased loan volumes. Non interest income totalled US$151 million compared with the US$213 million earned over the same period last year (excluding the gain from the Banco ABC Brasil IPO) mainly from the mark to market of the trading securities portfolios and the funds of hedge funds portfolio, which ABC decided to exit in the first quarter of 2008.

Operating expenses totalled US$268 million for the year to September compared with the US$214 million for the same period last year, as there has been an increase in the number of employees to cater for increasing retail customer demand, and increases in staff variable compensation. ABC’s pre-provision cost income ratio for the year to September was 57%, compared with 50% for the same period last year (excluding the gain from the Banco ABC Brasil’s IPO). 

Impairment provisions for the year to September amounted to US$974 million, made up of             US$234 million in the third quarter and US$740 million for the first half of the year (mainly from the US$733 million to fully provide for exposures to structured investment vehicles (SIVs) and collateralized debt obligations (CDOs), even though 70% or over US$400 million of CDOs are still current with interest payments). After these provisions, the overall result for the year to September was a net loss of US$852 million.

Shareholders’ equity at 30 September 2008 stood at US$1,774 million compared with the total of  US$1,867 million in December 2007. ABC’s capital base remains strong and at 30 September 2008 ABC's capital adequacy ratio, calculated on the basis of the Basel II capital adequacy regime (with which ABC has been compliant since 1st January 2008) stood at 15.6%, predominantly Tier 1, which totalled 12.5%.

ABC’s liquidity remains strong, with the liquid assets to deposits ratio at 65%, compared with 72% at the 2007 year end. ABC’s securities portfolio comprises largely of highly liquid investment grade FRNs and securities guaranteed by US government agencies.

ABC is quite comfortable with its current liquidity situation, and, to ensure that ample funding is available, have been running a daily cash position averaging over US$1 billion that is being placed in the overnight interbank market. ABC’s Minimum Liquidity Guideline has been comfortably exceeded over the last several months despite the global inter-bank market effectively drying up. This has been possible due to the Group’s ability to repo its high quality securities portfolio at competitive rates.

Loans and advances increased to US$13.2 billion from US$12.3 billion in December 2007, as the lending portfolio continued to expand to meet customer demand. Consolidated total assets stood at US$30.4 billion at the end of September 2008 compared with end 2007 figure of US$32.7 billion.

Mr. Hassan Juma, President & Chief Executive of ABC, said, “ABC has largely concluded the in-depth review of its medium term strategy begun in May, and is now poised to focus efforts on implementing new initiatives to increase revenue generation capabilities. Our banking model is being realigned to focus on international Wholesale Banking and Universal Banking across North Africa and the Levant, incorporating into our traditional activities a new emphasis on revenue growth from relationship banking and retail activities. At the same time, our shareholders continue to demonstrate their confidence in ABC’s future prospects.

“Despite the difficult environment, the continuing increase of earnings clearly demonstrates the success of our strategy over the past few years – focusing on the Arab region and its trade flows. Our strengths in Wholesale Banking activities are complemented by rapidly growing revenues from our Universal Banking subsidiaries in the Arab World and our new initiatives will further increase our presence and role in the growth of the MENA region.”

 About Arab Banking Corporation

Arab Banking Corporation was incorporated as a Bahrain joint stock company in 1980 by Amiri decree in the Kingdom of Bahrain. ABC is listed on the Bahrain stock exchange.

ABC offers a wide range of banking products including trade finance and forfaiting, project and structured finance, syndications, corporate and institutional banking, treasury services, investment banking, Islamic banking and retail banking in the Arab world.

ABC's strategy of diversified growth led to the development of its widespread network of branches, representative offices, subsidiaries and affiliates in Arab world countries and international financial centres, including London, Paris, Milan, Frankfurt, Madrid, Stockholm, New York, Grand Cayman, Sao Paolo, Singapore, Tripoli, Tunis, Algiers, Egypt, Bahrain, Istanbul, Beirut, Abu Dhabi, Tehran, Amman and Baghdad.

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