(MENAFN - Arab Times) At their meeting on Thursday, 7th February 2013, the Board of Directors of Gulf International Bank B.S.C. (GIB) approved the consolidated financial statements for the year ended 31st December 2012. GIB recorded consolidated net income after tax of 117.9 million being 13.4 million or 13 per cent up on the prior year.
Net income after tax in the fourth quarter was 20.9 million compared to 19.9 million in the fourth quarter of 2011. Year-on-year increases were recorded in all income categories, with the exception of other income. Net interest income, which at 149.4 million represented the Bank's principal income source, was 5.6 million or 4 per cent up on 2011. During 2012, loans and advances, the principal source of the Bank's net interest earnings, increased by 358.5 million or 5 per cent.
The growth in the loan portfolio reflected the leveraging of GIB's expertise to serve the Bank's large and mid-cap customers. The growth in loans in 2012 followed year-on-year decreases in the loan volume since 2007 as the Bank implemented deleveraging and derisking initiatives. The renewed growth in 2012 reflected the success of the transformation of GIB's wholesale banking activity and effective engagement with the Bank's customers to meet their financing requirements. Fee-related income at 56.7 million was 8.2 million or 17 per cent higher than the previous year. As a result, fee-based income comprised almost one quarter of total income, reflecting further positive progress in the implementation of GIB's strategic focus on non-asset based, relationship-orientated services.
Trade finance-related commissions in particular recorded a 27 per cent year-on-year growth following a 42 per cent year-on-year increase in the prior year. In addition, foreign exchange income at 21.3 million for the year was 11.0 million or more than double the prior year level. Foreign exchange income principally comprised profits generated on customer-initiated foreign exchange contracts. The substantial year-on-year increase reflected a focus on the cross selling of treasury products to clients and the introduction of new products and services to meet client needs. Trading income at 14.3 million for the year was 7.0 million up on, or almost twice the prior year level.
This was principally attributable to profits on investments in emerging market debt. There was particularly strong growth in the emerging markets during 2012 and the Bank was well positioned to benefit from the positive sentiment in this market sector.
Other income of 13.3 million was 3.7 million lower than in the prior year. Other income principally consisted of dividends received from equity investments, profits realised on the sale of investment securities, and recoveries of impaired loans.
Prior year other income included an exceptional profit arising on the repurchase of the Bank's own senior and subordinated debt.
Total expenses of 136.1 million for the year were 14 per cent up on the prior year. The year-on-year increase in expenses reflected ongoing investment in the implementation of GIB's GCC-focused universal banking strategy.
A net provision release of 2.3 million was recorded for 2012. The absence of a net provisioning requirement for a second consecutive year reflected the prudent and conservative provisioning actions taken by the Bank in previous years.
GIB's Chairman H.E. Jammaz bin Abdullah Al-Suhaimi, commented "I am pleased with the progress made in the implementation of GIB's new strategy, which aims at a total transformation of the way the Bank conducts its business and will take it into new frontiers of sophisticated banking.
The strategy aims to transform GIB into a pan-GCC universal bank incorporating a unique retail bank offering. The strategy implementation has involved the restructuring of the wholesale banking activity and preparations for the launch of a new retail banking business which are now in an advanced stage."
H.E. Al-Suhaimi continued "We believe that these measures will, within a few years, achieve the levels of profitability and return on equity in line with the expectations of our shareholders. The new institution will also benefit from more diversified and stable funding, thus reducing volatility and minimising the effects of external shocks.
I am confident that the Bank is well placed to take advantage of new business opportunities, continue its key role in Saudi Arabia and the region as a leading financial institution, and ensure prosperity for all its stakeholders."
Dr. Yahya bin Abdullah Alyahya, GIB's Chief Executive Officer stated "We are delighted to report continued profitability growth in 2012 despite increased costs associated with the investment in the future of the Bank through new strategic initiatives. GIB's robust funding position during 2012 reflected the confidence that the Bank's customers and counterparties have in its strong ownership and financial strength.
This was clearly demonstrated when GIB issued a 500 million 5-year senior unsecured bond in December at one of the lowest coupons for a US 5-year senior unsecured debt issue by a bank in the MENA region.
The bond issue was 3.5 times oversubscribed, even at a highly competitive pricing level, providing a conclusive endorsement of the international investor's confidence in GIB's strong financial position."
He added, "GIB has been frequently recognised for its commitment to professionalism and excellence, and the very best in customer service. In 2012, the Bank was presented with a number of awards, including two awards from Banker Magazine:
Most Innovative Investment Bank in the Middle East, and "Deal of the Year" for Islamic Finance Middle East category. New York-based Global Finance magazine also selected GIB as Best Investment Bank in Bahrain for 2012, the second year in which GIB has been selected for this award."
Dr. Alyahya continued, "Underscoring GIB's financial performance was the re-affirmation of the Bank's long-term issuer ratings by Fitch, Moody's and Standard & Poor's. Also, and most importantly, in March 2012 the Fitch rating agency upgraded GIB's Viability Rating to 'BBB-' from 'BB', i.e. upgraded the Viability Rating to investment grade.
Fitch's Viability Rating represents an evaluation of the Bank on a standalone basis excluding shareholder support. The upgrade in the rating reflected Fitch's view that there had been a significant improvement in the Bank's risk profile and a transformation in its balance sheet, as well as having a strong liquidity position.
It was particularly pleasing as it represented one of the very few rating upgrades of a bank since the financial crisis of 2007/2008. The rating agencies noted GIB's strong ownership and capitalisation, improved liquidity, and conservative provisioning.
Such recognition constitutes a positive independent endorsement of the proactive and conclusive actions taken by GIB and its shareholders to address the challenges created by the global financial crisis."
Dr. Alyahya also highlighted "The Bank's Basel 2 Total and Tier 1 capital adequacy ratios at 31st December 2012 were 20.1 per cent and 17.4 per cent respectively. These are both exceptionally high by international comparison, underscoring the Bank's intrinsic financial strength. With these strong capital ratios and as a result of the actions taken to strengthen the Bank's liquidity position, GIB is already in full compliance with almost all of the Basel Committee's Basel 3 guidelines that are planned to be implemented over the next few years.
Consolidated total assets at Dec 31, 2012 were 17.7 billion. The asset profile at the 2012 year end reflected a high level of liquidity that is being maintained as a precautionary measure in the prevailing market environment. Placements and liquid assets amounted to 6.6 billion at the year end, representing a very high 37 per cent of total assets.
In addition, investment securities, which principally comprise highly rated and liquid debt securities issued by major financial institutions and regional government-related entities, amounted to 3.6 billion.
Following the actions taken in prior years to derisk the balance sheet and eliminate the Bank's vulnerability to external shocks, GIB has no direct exposure to European government debt impacted by the eurozone crisis and has accordingly not been impacted by the turmoil in the European debt markets. Loans and advances amounted to 7.1 billion, being 0.4 billion up on the 2011 year end level.
The loans-to-equity ratio was a conservative 3.3 times, while the ratio of loans to customer deposits and term finance was a prudent 57 per cent.
The Bank is applying a prudent approach to its funding activities in the current environment, with a focus on enhancing non-asset based fee income. At the end of 2012, customer deposits, which increased by 1.0 billion over the prior year end, represented 81 per cent of total deposits. Importantly, the Bank is a net placer of funds in the interbank market. GIB is a leading bank in the Middle East with its principal focus on the Gulf Cooperation Council (GCC) states. The Bank is 97.2 per cent owned by the Government of Saudi Arabia. In addition to its main subsidiaries Gulf International Bank (UK) Ltd. and GIB Capital, the Bank has branches in the Kingdom of Saudi Arabia, the United Kingdom, the United States of America, in addition to representative offices in the United Arab Emirates and Lebanon.