ADIB gains on smaller provision

Abu Dhabi Islamic Bank's (ADIB) second-quarter profits rose by more than half as it required less provisioning for bad loans in a sign that the outlook for the lender is improving. The UAE's second-biggest Sharia-compliant bank reported a net profit of Dh301.6 million (US$82.1m) in the June quarter, up from Dh193.1m in the same period last year, the company said yesterday.

"While the brunt of the legacy portfolio's cost of credit was absorbed in 2009, we will continue to take further prudent measures in 2010 and, depending on the credit and real estate markets, this will include further credit provisions and impairments," said Tirad Mahmoud, the chief executive of ADIB. Mr Mahmoud told Reuters the bank also expected to report "double-digit" profit growth in the second half of the year. ADIB's total credit provisions in the second quarter fell to Dh134.6m from Dh171.4m in the same period last year, the bank said. Total provisions stood at Dh1.93 billion at the end of the quarter. ADIB is the second UAE lender to report second-quarter results as the country's banking sector recovers from a credit crunch triggered by the global financial crisis. Lending growth has remained sluggish as banks have been forced to set aside provisions to protect themselves against a rise in non-performing loans.

With no exposure to the troubled Dubai World, ADIB is expected to take less of a hit than banks involved in the government-controlled company's multibillion-dirham debt restructuring. The bank's second-quarter operating profit rose 20 per cent to Dh436.2m compared with the same period last year, with revenue advancing 24 per cent to Dh744.2m. ADIB said it planned to open 13 branches this year to expand its retail banking presence. Shares in ADIB had closed before the announcement was made and were down 0.4 per cent on the day at Dh2.45. The bank plans to raise as much as $5bn from selling Islamic bonds under a trust certificate programme. It said last Wednesday it had no immediate plans to sell bonds. ADIB is embroiled in a US court case involving a $40m trade finance deal involving commodity shipments to Taiwan and Spain.

Fortis Bank, a Dutch lender that merged with ABN Amro this year, sued ADIB in New York in June last year claiming the Islamic lender had defaulted on its obligations under the deal. The case relates to a letter-of-credit transaction signed in 2008 involving ADIB, Fortis and Awal Bank in Bahrain. The case is just one of a growing number of lawsuits filed worldwide as a result of a financial dispute between Maan al Sanea, the chairman of Saudi Arabia's Saad Group, and Ahmad Hamad Al Gosaibi and Brothers, another Saudi conglomerate.

tarnold@thenational.ae