Manama: Bank ABC (Arab Banking Corporation) reported signs of some recovery from the unprecedented and deeply challenging trading conditions encountered during H1 2020, while a number of the challenges encountered in the first half continue to impact our results.
The Group, which announced its results for the first nine months of 2020, in a statement said that the year started well with a strong balance sheet and good client transaction pipeline as we continued our digital and wholesale bank transformation.
However, as the year progressed, our plans were heavily impacted by the unique combination of Covid19, collapse in oil prices and consequent economic and market pressures, together with the emergence of some major fraud cases which significantly affected Loan Loss Provisions.
In Q3, the underlying business performance in most units picked up, although the emergence of ‘second wave’ in many geographies continue to pose a risk of disruption to the fragile signs of recovery. Overall business and client revenues held up well, while net interest margins were impacted by falling interest rates, and Brazilian Real depreciation created a significant translation impact on revenues from Banco ABC Brasil (“BAB”). In response, extensive measures were taken on operating expenses to offset the reduction in revenues to some degree, so that on an underlying pre-provision basis, the Group achieved a net result of US$191 million compared to US$210 million in 2019. However, against this, a significant nine months ECL charge of $234 million (Q3 2019 $46 million), largely as a result of a major client fraud, combined with the forward-looking nature of IFRS9, has led to the Group reporting a net loss of $56 million.
Expanding further on our underlying nine months performance, Bank ABC has demonstrated resilience in a number of key areas:
Client and transaction revenues have performed well, with many of our units posting total operating income levels of around 85% of previous year comparatives.
Many key wholesale and retail banking clients have been provided with support measures such as payment deferrals extending across approximately US$1 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$19 billion of debt origination facilitated in the first nine months.
Group’s payment and digital retail banking capabilities continue to expand, through Arab Financial Services and our new digital, mobile-only ila Bank launched in Q4 2019, which showed exceptional growth of customer numbers and deposits under management.
Our overall asset portfolio quality remains solid and our credit underwriting standards are sound, which has been confirmed by extensive client level stress-testing reviews; and the ‘one-off’ nature of client related fraud impacting our ECL has been recognised by our rating agencies reaffirming our most recent ratings with a stable outlook.
Bank ABC’s balance sheet is strong with excellent capital and liquidity levels, which have been further bolstered by the retention of the 2019 dividend.
Over the rest of 2020, the Group will continue to prioritise measures to restore profitability in a new normal operating environment characterized by low interest rates, low oil prices and constrained operating conditions while stabilising ECL charges.
“The Q3 results show our significant capacity to weather extreme volatility. Against the backdrop of the pandemic and other market uncertainties, we have been able to maintain a strong balance sheet, excellent liquidity and effective operating processes. We will continue to adapt our business model by further reducing our operating costs and increasing our focus on fee generating businesses of the Group. Likewise, our digital transformation will remain a key driver in moving us to the Bank of the future,” Saddek Omar El Kaber, Bank ABC’s Group Chairman, said.
