The Group had a strong start to the year supported by a robust balance sheet,
good client transaction pipeline and a clear plan for growth driven by our digital
agenda and wholesale bank transformation. However, as the year progressed, our financial
results were heavily impacted by the unique combination of COVID-19, collapse
in oil prices and consequent economic and market pressures, together with the
emergence of some major regional fraud cases, which significantly elevated Loan
Loss Provisions to abnormally high levels.
ABC responded early to the pandemic, with measures to protect its staff,
strengthen operational resilience, contain costs during Q1 2020 itself and at
the same time continued to invest in strategic priorities.
ABC took its digital transformation, during the year, to new levels,
completely changing the banking experience of its customers in Bahrain, with its
world-class mobile-only digital bank, ila, significantly exceeding our expected
growth targets. In addition, ila was awarded the Seamless Middle East 2020
award for Digital Banking Experience of the Year – 2020, and four Transform
Middle East awards for its visual identity.
Likewise, the Group identified an opportunity during the crisis for
inorganic growth in our core market Egypt, having some of the best fundamentals
in terms of population and growth potential for banking services. After extensive
due diligence and negotiations, Bank ABC entered into an agreement to acquire
99.4% stake in Blom Bank Egypt S.A.E., providing an excellent franchise
addition and platform for growth.
Overall in 2020, the underlying* business and client revenues held up
well in all our markets of operation, achieving 91% of previous year levels,
when normalised for hedging and adjusted for uncontrollable market factors,
primarily depreciation of the Brazilian Real ~23% creating a significant
translation impact on revenues from Banco ABC Brasil (BAB).
In response, extensive measures were taken on operating expenses to
mitigate the reduction in revenues, so that on an underlying* net operating profit
basis, the Group achieved a net result of US$282 million compared to US$351 million
However, a significant ECL charge of US$329 million (FY
2019 US$82 million), of which US$183 million was the result of unforeseeable
major client frauds in the region. The remainder of US$146 million was elevated
due to the pandemic and the
forward-looking nature of IFRS9, representing a significant increase on
previous year’s levels, similar to the experience of other market players.
the ECL charge has led to the Group reporting a net loss of US$89 million, and
without the one-off fraud element the Group would have been in a net profit
position of US$94 million.
Expanding further on our underlying 2020 performance, Bank ABC has demonstrated
resilience in a number of key areas:
- Our Global diversification has proven again of added value, with solid
growth in the Americas, steady growth in MENA, compensating for the slower
growth in our European markets.
- Client and transaction revenues have performed well, with total
operating income levels averaging to around 94% of previous year comparatives
across the Group units.
- Many key wholesale and retail banking clients have been provided with support
measures such as payment deferrals extending across approximately US$ 0.9 billion
of our consolidated loan portfolio.
- Bank ABC’s reputation and standing have allowed us to continue to act
as a lead arranger in areas of Debt Capital Markets and Syndications on major
conventional and Islamic financing transactions with approximately US$23 billion
of debt origination facilitated.
- Our payment and digital retail banking capabilities continue to expand,
through our new digital, mobile-only Bank ila, which completed its first full
year of operation in Q4 2020 showing exceptional customer numbers and deposits.
overall asset portfolio quality remains solid, with sound credit underwriting
standards, further confirmed by extensive client-level stress-testing reviews; The
‘one-off’ nature of client-related fraud impacting our ECL has been recognised
by rating agencies reaffirming our most recent ratings with a Stable outlook.
ABC’s balance sheet remains strong with excellent capital and liquidity levels,
further bolstered by the retention of the 2019 dividend. Group Tier 1 ratio is
16.6% (comprising predominately Core Equity (“CET1”) at
16.2%), LCR is 324% and NSFR is 122%.
Bank ABC's Group Chairman, Mr. Saddek Omar El Kaber
commented “2020 has been a
year like no other. Our performance has
been overshadowed by the COVID-19 pandemic with its consequent lockdowns and market
uncertainties including low interest rates and low oil prices, compounded by
unprecedented fraud cases in the region. Against this turbulent backdrop, Bank
ABC was able to demonstrate its
resilience and agility in adapting to the “new normal”. We had ended the
year healthy with excellent liquidity
and stability in pre-provision profitability, although disrupted by an exceptional
2020 has allowed us to expand our business by a significant acquisition and a
remarkable head start of our digital consumer bank in Bahrain. I thank our staff for their exemplary
dedication and commitment in serving our customers against all head winds.
As we look
towards the future with the Bank’s health intact and a more efficient operation,
we remain confident that we will return to Profitability and our strategic efforts
will bear more fruits during 2021.”
A more detailed summary of 2020 Financial Results explained below:
Q4 2020 Business Performance
- Consolidated net loss attributable to the shareholders of the parent,
for the three months of Q4 2020 was US$33 million, compared to a net profit of
US$33 million reported for the same period last year.
- Earnings per share for
the period was negative, compared to US$0.01 in the same period in the previous
- Total comprehensive
income attributable to the shareholders of the parent was US$91 million
compared to US$85 million reported for the same period last year.
- On a headline basis,
total operating income was US$218 million, 6% lower compared to US$232 million
reported for the same period last year. On an underlying basis,* total
operating income was at US$203 million for the period, compared to US$223 million for the same period last year.
- Net interest income was US$134
million, 6% lower against US$143 million reported for the same period last
year, after absorbing the impact of declining interest rates and FX
- Operating expenses were
at US$126 million, 10% lower than US$140 million for the same period last year,
benefiting from the cost savings initiatives during the year, while
reprioritising the continuing investments into the Group’s digital
transformation and strategic initiatives.
- On an underlying* basis, the Group achieved a net operating profit of
US$70 million compared to US$83 million in Q4 2019.
- Impairment charges (ECL) for the period were US$95 million compared to
US$36 million reported for the same period last year, due to reasons explained
FY 2020 Financial results
- Consolidated net loss attributable
to the shareholders of the parent, for the year 2020 was US$89 million, compared
to a net profit of US$194 million reported for the same period last year.
- Earnings per share for the period was at US$-0.03, compared to US$0.06
in the previous year.
- Total comprehensive loss attributable to the shareholders of the parent
was -US$267 million compared to total comprehensive income of US$261 million
reported last year, reflecting the net loss combined with significant market
volatility during the year mainly from Brazilian Real depreciation of ~23% and unfavourable movements in fair value of
- Equity attributable to
the shareholders of the parent at the end of the period was at US$3,767 million,
7% lower compared to the US$4,031 million at the 2019 year-end.
- Total assets stood at US$30.4
billion at the end of the period, 1% higher compared to US$30.1 billion at the
2019 year-end. On an underlying* basis, total assets grew by 7%.
- Loans and advances were
at US$15.7 billion at the end of the period, compared to US$16.5 billion at the
2019 year-end, a reduction of 5% on a headline basis. However, adjusted for BRL
depreciation impact, the Loans and advances were 2% above last year, reflecting
continued focus and selective growth in key markets through a more prioritised
asset selection given the prevailing conditions.
FY 2020 Business Performance
- On a headline basis, total operating income was US$646 million, 25% lower
compared to US$865 million reported for the same period last year. However, it
should be noted this is before the effect of normalising adjustments due to currency
hedges in Banco ABC Brazil and before FX depreciation. On an underlying basis,*
total operating income was at US$793 million for the period, 91% of US$875 million
for the same period last year, reflecting resilience across most of our markets
and business lines.
- Net interest income was
US$516 million, 9% lower against US$564 million reported for the same period
last year, after absorbing the impact of declining interest rates and FX
depreciation. On an underlying* basis, net interest margin was at 98% of last
- Operating expenses were
at US$486 million, 7% lower than US$524 million for the same period last year.
Cost savings initiatives have been undertaken, while reprioritising the continuing
investments into the Group’s digital transformation and strategic initiatives.
- On an underlying* basis, the Group achieved a net operating profit of
US$282 million compared to US$351 million in 2019.
- Impairment charges (ECL)
for the period were US$329 million compared to US$82 million reported for the same
period last year. The sharp increase in ECL was to a large extent attributed to
a major client fraud which affected many banks in the region. The situation is complex
but is progressing steady towards a recovery plan. However, it is clear that
there are sophisticated schemes and systematic high-level collusion to defraud
banks, mislead auditors and obfuscate significant undeclared debt levels.
- Leaving aside fraud related
elements, Stage 3 ECL charges remain well contained and in line with our past
experience. An increased ECL charge on Stage 1 and 2, arising from application
of IFRS 9 to the portfolio under the stressed macroeconomic conditions, is also
in line with industry trends given the forward-looking nature of IFRS9.
- The ratio of impaired loans
to gross loans was at 5.2% compared to 2019 year-end levels of 3.7%, the
increase largely attributable to the fraud cases noted above. The ratio normalises
to 4.4%, when long-standing legacy fully provided loans are adjusted for.
- Notwithstanding these challenging conditions, the
Group’s overall asset portfolio quality remains solid and our underwriting
standards are sound.
- Deposits were at US$21.3 billion, compared to the levels of US$21.0
billion at 2019 year-end. Despite the prevailing conditions, our deposit
experience remained steady underscoring the confidence of our clients. Our
efforts to diversify and improve the quality of our deposit base continue.
- Liquidity ratios are strong
with LCR and NSFR at 324% and 122% respectively with
comfortable buffer and liquid assets to deposits ratio healthy at 52% improved
from 51% at 2019 year-end.
- Capital Ratios strong: CET1 at 16.2%, Tier 1 at 16.6% and total capital
adequacy ratio (CAR) 17.5%.
Bank ABC is a leading
player in the region’s banking industry and provides innovative wholesale
financial products and services that include corporate banking, trade finance,
project and structured finance, syndications, treasury products and Islamic
banking. It also provides retail banking services through its network of retail
banks in Jordan, Egypt, Tunisia and Algeria and through ila bank in Bahrain.
*’Underlying’ basis referred above calculated after adjusting for normalization of tax treatment of currency hedges in BAB which have an offsetting effect between Income and tax, FX depreciation and other one-off exceptional items. Further details are explained in the Investor presentation available on Bank ABC website.
Mr. Saddek Omar El Kaber