(MENAFN- Khaleej Times)On loan growth ADIB is looking at four to six per cent credit expansion this year.
ADIB's cushion against bad debts is slightly over two per cent of its total loan portfolio higher than the required 1.5 per cent under the Central Bank of the UAE's guidelines. - Supplied photo
Abu Dhabi: Several banks and financial institutions in the UAE are building provisions as a precautionary measure in anticipation of possible bad debts they may face in the future the chief executive officer of Abu Dhabi Islamic Bank or ADIB said.
Tirad Al Mahmoud also said that since not all borrowers they deal with are registered with the UAE’s Etihad Credit Bureau their data is unknown.
Speaking to reporters the CEO of the UAE’s second-biggest Shariah-compliant lender said several banks and financial institutions are still not in the bureau due to which the financial history of their customers is not accessible. He said he would not be able to know if a customer who has a good financial history with ADIB may be defaulting with another bank.
At present ADIB’s rejection rate for loan applications it receives is between nine to 10 per cent which may drop or rise once the Etihad Credit Bureau’s report on an individual or corporate covers the financial data on all the customers of all banks and financial institutions operating in the country. These loan applications are turned down based on the present data only that does not cover all the financial institutions and their customers’ financial history he added.
In order to avoid massive write-offs ADIB is building provisions because he expected “unpleasant surprises” when all the data comes to light. “The presence of the Etihad Credit Bureau is extremely important in itself for better transparency and when it is in full operation the extent of transparency will be full” he adding that ADIB’s cushion against bad debts is slightly over two per cent of its total loan portfolio higher than the 1.5 per cent under the Central Bank of the UAE’s guidelines for collective provisions.
Al Mahmoud said ADIB is planning buyouts in 2016 in Asia the Middle East and North Africa.
“The bank was looking in Malaysia and Indonesia as well as Algeria Jordan and Morocco although the remainder of 2015 was not the right time for deals in part due to slower economic growth in the UAE.”
“This is a time to let things settle down and [instead] we will be looking to do deals in 2016” he said.
ADIB was one of several bidders for Citigroup’s Egyptian credit card and wealth management business. It lost out to local lender Commercial International Bank whose bid was “very aggressive” the CEO said.
He said ADIB’s overseas expansion could involve acquisitions in the retail space or growing its own corporate business.
The bank last year completed the purchase of the retail business of Barclays in the UAE helping create one of the largest ATM networks in the country.
On loan growth ADIB is looking at four to six per cent credit expansion this year. However on a consolidated basis he said it would be in “high single-digit” growth.
He disagreed with a reporter that the UAE’s market conditions were sluggish: “I can tell you that it is the best period for the UAE resident consumer. The deals are basically extremely attractive and the argument in the past that banks in UAE are not very competitive has been totally erased with the current market situation.”
The bank enjoyed several quarters of bumper earnings as the economy has flourished. But Al Mahmoud said “tailwinds were not as strong as they used to be” as economic growth had eased.
Return on equity across the local banking industry was expected in the region of 15-18 per cent Al Mahmoud said adding he hoped ADIB would be at the top end of that range.
The bank’s return on average shareholders’ equity was 18.4 per cent in 2014 according to a recent financial presentation. But Al Mahmoud said there was a “bit of irrational exuberance” among banks in the pricing of products.
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