Manama, Bahrain: Arab Banking Corporation (B.S.C.), the international wholesale bank based in Bahrain today reported that the solid underlying performance from core business activities generated total income for the second quarter of US$192 million, an increase of 15% over US$167 million for the same period last year.
Interest income at US$106 million was 54% higher than US$69 million for the same period last year from increased volume of loans and securities. Non interest income, which totaled US$86 million was 12% lower than US$98 million earned last year, mainly due to the mark to market of the funds of hedge funds portfolio which, in view of the continued uncertainties in the international financial markets, ABC decided to completely exit in March 2008. Revenues from other income sources, including trade finance & forfaiting activities, project finance, Islamic financial services, corporate and retail banking, remain robust.
Operating expenses increased by a nominal eight per cent to US$92 million from US$85 million last year. ABC’s pre-provision cost income ratio for the second quarter of 2008 was 48%, lower than 51% for the same period last year.
In the face of continued deterioration in market values and uncertainties as to their ultimate recoveries, ABC decided to make a clean sweep and write-down in entirety its remaining net exposures to collateralized debt obligations (CDOs) of US$134 million. This meant taking a provision of US$134 million in the second quarter of 2008 (after writing down 78% of the gross exposures of US$614 million at the end of the first quarter of 2008) even though 70% or US$434 million is still current with interest payments. After this provision, the overall result was a net loss of US$71 million for the second quarter of 2008.
Consolidated total assets stood at US$31.8 billion at the end of June 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, declined to US$12.1 billion from US$13.6 billion at the end of 2007. Loans and advances increased to US$13.5 billion, up US$1.2 billion as the lending portfolio continued to expand to meet customer demand. ABC’s liquidity remains strong, with the liquid assets to deposits ratio at 67% (2007 year end: 72%).
In June 2008 ABC’s share capital was increased through a priority rights issue to existing shareholders of one share for every share held, i.e. 1.0 billion shares at nominal value of $1.00 each and at a premium of $0.11 per share. ABC's principal shareholders oversubscribed their rights in their pre-existing proportions. The allotment was completed on 18 June 2008, and ownership of ABC now stands as Kuwait Investment Authority 29.7%, Central Bank of Libya 29.5%, Abu Dhabi Investment Authority 27.6%, and other shareholders 13.2%.
At the end of the second quarter, and after provisions, shareholders’ equity stood at US$2,154 million. ABC's capital adequacy ratio at 30 June 2008, calculated on the basis of the Basel II capital adequacy regime with which ABC has been compliant since 1st January 2008, stood at 15.4%, predominantly Tier 1 which totaled 12.8%.
Mr. Hassan Juma, President & Chief Executive of ABC, said “The successful completion of the rights issue is a recognition of the confidence of the shareholders in ABC’s strategy to focus on fulfilling the long term needs of our clients and the aspirations of our shareholders, despite the ongoing challenging conditions in the financial industry.
“As ABC moves into the second half of 2008, the challenging conditions that impacted financial markets for the past year have continued and deepened. Despite this, increasing core earnings clearly demonstrate the success of our strategy – focusing on the Arab region and its trade flows. Our strengths in wholesale activities in Treasury operations, Islamic financial services and trade and project finance are providing additional income streams, coupled with our retail / SME subsidiaries in the Arab World.
“ABC is currently conducting an in-depth review of its medium term strategy, similar to the periodic reviews previously conducted in 1997 and 2003. This review will cover all aspects of ABC’s operations - the economic and competitive environment - the Group’s vision of its future role and mission, and in addition, its banking model going forward. ABC will be assisted by external consultants in conducting this review.”
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.