Manama, Bahrain: Arab Banking Corporation today announced the Group’s net profit for the year to 31 December 2007 of $125 million, compared with the net profit of $202 million for 2006. This significant change was entirely due to the net provision of $230 million resulting from securities’ write-downs that the Group was obliged to take in the wake of the global credit squeeze that followed the US sub-prime housing loan crisis in July that has worsened in the fourth quarter, cushioned by credit write-backs and recoveries on impaired loans.
ABC experienced an extremely good year as total income climbed to $691 million (2006: $484 million). Net interest income at $298 million was $49 million or 19 per cent higher than the same period last year, mainly because of increased lending activities. Non-interest income – fees, commissions and trading income – totalled $393 million, up $158 million or 67 per cent from last year, boosted partly by an exceptional gain in July of $94 million from the highly successful initial public offering in July of its Brazilian subsidiary, Banco ABC Brasil S.A. - whereby ABC diluted its holdings from 84% to 56% - and increased revenues from the growth in all ABC’s core activities. The core product groups - treasury, trade finance, project & structured finance, Islamic financial services, retail banking and investment banking each contributed positive results. Islamic Financial Services continued to expand its product base and its regional franchise, rapidly establishing itself as a dominant player in the market place. The Investment Banking Division, which commenced operations only in late 2006, made an impressive start by winning mandates, focusing initially on acquisition finance and contributing to the overall revenue stream of the Group.
ABC’s retail units based in the Middle East and North Africa region meanwhile maintained their pace of expansion, particularly in Algeria, Jordan and Egypt, adding to the branch network and the range of tech-enabled service as well as personal loans and savings products.
Operating expenses increased to $275 million, $13 million or 5 per cent up from last year. This is attributable to the effects of the current weakness of the US dollar on the Group’s foreign currency denominated expenses, as well as the costs of additional staff hired to develop its growing business lines, and cost of living increases. ABC’s expense ratio, the comparison between total income and expenses, improved to 40 per cent over the period, down from 54 per cent for last year.
As a result of this significant increase in revenues and the modest rise in operating expenses ABCs operating profit reached a record $416 million, an increase of $194 million or 87 per cent over 2006.
Consolidated total assets reached $32.7 billion at the year end, up $10.3 billion or 46 per cent over 2006. ABC’s securities’ portfolio grew to $13.6 billion, an increase of $5.1 billion or 59 per cent, and mainly comprised highly liquid investment grade securities. Loans and advances increased to $12.3 billion, up $3.7 billion or 43 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 72 per cent (2006: 74 per cent). The loans to deposits ratio was reduced marginally to 46 per cent (2006: 49 per cent) as total deposits increased to $26.9 billion, an increase of $9.2 billion or 52 per cent.
Shareholders’ equity at the year end stood at $1,867 million, compared with $2,068 million in December 2006, incorporating the net effect of the dividend of $100 million paid to shareholders in the second quarter and fair value adjustments of $241 million linked to the widening of credit spreads on the securities’ portfolio arising from recent events on international markets, enhanced by the current year’s earnings. ABC’s Board of Directors has resolved not to recommend any dividend for the year ended 31 December 2007. The Group continues to maintain a strong risk asset ratio, at 15.3 per cent (2006: 17.0 per cent).
ABC’s funding efforts during 2007 were particularly successful, raising $500 million under a subordinated loan facility in April – its first ever subordinated issue - and a further $1 billion under a syndicated 5 year term loan facility in June, immediately prior to the emergence of the sub-prime crisis, both priced at rates reflecting an international credit rating of A.
Mr. Ghazi M. Abdul-Jawad, President & Chief Executive said, “Whilst adverse market conditions over the second half of the year impacted our annual result, ABC’s core business activities continued to demonstrate strong growth, benefiting from the sustained increase in oil prices that is fuelling regional development and economic growth. The continued expansion of ABC’s core regional business activities fully supports our strategic vision – to focus on core businesses whilst continuing to diversify our earnings’ stream.”