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One year into the full integration of First Gulf Bank (FGB) and National Bank of Abu Dhabi (NBAD), First Abu Dhabi Bank (FAB) offers an example of how the bringing together of two very different banking cultures can result in a slicker, stronger operation.
Under the leadership of chief executive Abdulhamid Saeed, formerly of FGB, the United Arab Emirates’ largest lender returned a 4% increase in net profit for the first nine months of 2019 to Dh9.4 billion ($2.56 billion), despite a more challenging global and regional backdrop.
“It proved to be correct, from a revenue angle, from a customer perspective, from an expense angle as well,” André Sayegh, FAB’s deputy chief executive told Euromoney in 2019. “The two banks as one became more efficient.”
NBAD was a strong wholesale and investment bank with proven international capabilities, but it lacked a decent retail offering. Luckily FGB was far ahead in this field, so the union has proved a complementary one.
“NBAD had a fantastically strong balance sheet but was terrible for consumers; FGB was so much further ahead with that offering,” says a Dubai-based head of debt capital markets. “You can really see how the merger made sense.”
In its first year of operations, the bank achieved net profit of Dh12 billion, up 10% on 2017. Already the bank has achieved 93% of its 2020 target cost synergies and remains focused on maximizing shareholder value in 2019.
The bank produced a solid net profit in the third quarter of 2019 of Dh3.1 billion, up 3% year on year, driven by a 5% increase in operating income. The cost-to-income ratio was 26.5%, while its cost of risk fell to 49 basis points versus 51bp in the same period in 2018. FAB’s total assets have grown 6% year to date, to Dh788 billion.
The bank’s net interest income was broadly stable at 2% up year on year as benefits from rate hikes in 2018 and volume growth in the government and public sector were offset by margin compression. The bank’s non-interest income was up 11% for the first three months of the year.
Revenues from FAB’s personal banking franchise, which contributes 38% to the overall group revenue, were Dh5.7 billion for the first three quarters of 2019 and digitalization remains a core focus. The bank reported growth in mobile registrations and digital transactions in the third quarter.
The growth of FAB’s retail banking franchise has led to comparisons with Emirates NBD. Although Dubai’s largest lender still has the edge when it comes to retail, analysts are confident that FAB is the bank to offer it proper competition.
“If there is a retail bank that can break out and become an overall Mena [Middle East and North Africa] retail bank, it is them,” says a Dubai based financial institutions banker.
Revenue from FAB’s corporate and investment banking franchise – which contributes 55% of the group’s overall revenues – was up 13% year on year at Dh8.4 billion, largely driven by the 28% increase in revenues from its global markets franchise. Transaction banking revenues were up 12%, while global corporate finance fell 1%.
Despite the fall in market volumes and margin compression, FAB reports a strong pipeline of deals. It remains the number-one bookrunner for Mena and Gulf Cooperation Council (GCC) syndicated loans. Loan growth was up 7% year to date in the third quarter of 2019, at Dh378 billion, despite the slowing domestic market; 74% of the banks’ lending is in the UAE, with the broader GCC accounting for just 5%.
NBAD’s ambitions to become an advisory house for international DCM were scaled back with the merger, but one area FAB could expand into is banking corporates from the other emirates.
“The missing link in their business is probably the non-Abu Dhabi corporate area,” says the Dubai-based banker. “FAB has the largest market team and probably the largest product suite as well, so they’re well placed to offer services an international bank can do. Another thing is to use the rating to their advantage and take more central bank and sovereign business, there are very few double-A banks left in the world.”
FAB’s strong balance sheet means it is also well placed to look abroad, both in the Gulf and more widely, as it works to meet its medium-term target of 20% contribution to its revenues from international business. Although analysts view FAB as Abu Dhabi’s international bank to Abu Dhabi Commercial Bank’s domestic champion, 86% of its revenues still come from the UAE.
The bank’s international revenues grew 5% year on year, led by higher contributions from Saudi Arabia and Egypt. International business currently contributes 14% of the group’s revenues.
At the end of September 2019, international loans and deposits represented 26% and 22% of group loans and deposits, respectively.