Bahrain-based Gulf International Bank (GIB) reported consolidated net income after tax of $84.6 million for the nine months ended 30th September 2011. Net income after tax in the third quarter was $22.2 million.
Year-on-year increases were recorded in all income categories, with the exception of net interest income. Net interest income at $105.5 million for the nine months was 13 per cent down on the prior year period. The year-on-year decrease was attributable to a lower average loan volume associated with ongoing de-levering initiatives, and an increase in the cost of term finance as a result of actions taken to minimise the mismatch in the maturity profile of the Bank’s assets and liabilities. While the increase in term finance has resulted in an additional cost, it has significantly reduced the Bank’s previous reliance on short term wholesale funding, thereby protecting the Bank in the current stressed market environment.
At the end of September 2011 only 13 per cent of the loan portfolio was funded by short term wholesale deposits. As recognised by the international credit rating agencies, the managed reduction in the leverage of the loan portfolio to a lower, more prudent multiple of equity has strengthened the Bank’s risk positioning. The impact on income of the reduction in the loan volume was partly offset by an increase in loan margins. Fee and commission income at $37.0 million was $10.5 million or 40 per cent higher than in the prior year period.
As a result, fee-based income comprised 22 per cent of total income, reflecting continued success in the implementation of GIB’s new strategic focus on non-asset-based, relationship-orientated services. Significant year-on-year increases were recorded in both trade finance and investment banking fees. Trading income at $14.6 million was $4.5 million or 45 per cent up on the prior year, reflecting strong customer-related foreign exchange revenues.
Other income, largely comprising dividends on equity investments and profits realised on the sale of investment securities, at $13 million was $3.0 million or 30 per cent up on the prior year. Total expenses at $84.2 million for the nine months were 15 per cent up on the prior year period. The year-on-year increase in expenses reflected ongoing investment in the implementation of GIB’s new GCC-focused universal banking strategy.
Consolidated total assets at the quarter end were $16 billion, being $500 million higher than the 2010 year end level. The asset profile at 30th September 2011 reflected an exceptionally high level of liquidity. Cash and other liquid assets, and short term placements totaled $5.5 billion, representing a very high 35 per cent of total assets, Investment securities at 30th September, which principally comprised highly rated and liquid debt securities, amounted to $3.3 billion. The Bank has no direct exposure to troubled European government debt and has accordingly not been impacted by the recent turmoil in the European debt market. Loans and advances amounted to $6.8 billion, being $0.7 billion lower than at the 2010 year end level.
The loan to equity ratio at the quarter end was 3.5, while the ratio of loans to customer deposits and term finance was a prudent 59 per cent. Customer deposits principally comprise deposits from governments, central banks and government-related institutions. Importantly, GIB does not have any net reliance on the interbank market. There was a further improvement in the Bank’s funding profile during 2011 with a $1.1 billion increase in customer deposits and a $0.3 billion increase in term finance.
GIB’s robust funding position reflects the confidence of the Bank’s customers and counterparties based on its strong ownership and financial strength, as validated by the reaffirmation of GIB’s ratings by all three international rating agencies – Fitch, Moody’s and Standard & Poor’s. The Basel 2 total and tier 1 capital adequacy ratios at 30th September were an exceptionally strong 24.2 per cent and 18.7 per cent respectively.