Merging company

ADIB Seeks Mergers & Acquisitions in UAE and GCC to Expand Asset Base

Abu Dhabi Islamic Bank, the emirate’s largest Sharia-compliant lender, seeks M&A opportunities in the UAE, GCC and markets beyond the region as it is looking to expand its asset base, said his group’s chief financial officer.

Organic and inorganic growth is part of the bank’s overall expansion strategy and nothing is excluded, said Mohamed Abdel Bary The National in an interview on Sunday. The bank’s clientele is “very active” in the region and in several other markets including Egypt, where ADIB is already very present.

“This is where we are looking. The target must be accretive for us and for our clients, ”he said. “So UAE is definitely on the list among many other GCC markets. “

ADIB has the capital and liquidity to acquire targets that “make sense to us”.

“Not all targets will add to a franchise like ADIB, which is quite large in terms of branch distribution [and] its customers, ”said Abdel Bary after the bank published its nine-month results.

“We have all the magic formulas to be successful, so it’s very important that when we look at inorganic opportunities they have to be capital accretive and that’s still on the table. “

According to Moody’s Investors Service, Gulf region banks that faced challenging operating conditions last year are considering mergers and acquisitions as they seek to scale up to offset the impact of the pandemic on their balance sheets and profit margins.

Mergers and acquisitions were already on the rise in the GCC banking sector before the pandemic pushed the world economy into its deepest recession since the 1930s. The economic slowdown and deteriorating asset quality, with a increase in non-performing loans, in particular forced small lenders to consider merging with larger banks to consolidate their balance sheets.

Mergers led by shareholders who held stakes in more than one lender – usually regional governments and their related entities – have already created larger, stronger financial institutions in the region, better equipped to weather headwinds.

Saudi National Bank, the kingdom’s largest commercial lender, was formed earlier this year through the merger of National Commercial Bank and Samba Financial Group.

In the United Arab Emirates, First Abu Dhabi Bank, the largest lender in the United Arab Emirates, was formed by the combination of the National Bank of Abu Dhabi and First Gulf Bank in 2017.

Abu Dhabi Commercial Bank also completed a three-way merger with Union National Bank and Al Hilal Bank in 2019, while Dubai Islamic Bank acquired its competitor, Noor Bank.

Mr. Abdel Bary said that ADIB is not currently pursuing acquisitions in the domestic market, but is open to opportunity-based transactions as there are good and well-diversified players in the market.

“It should not be an acquisition for the sake of acquiring,” he said.

ADIB reported a 43% jump in its nine-month profit to 1.6 billion dirhams ($ 436 million) on Sunday as revenues increased, he said in A declaration at the Abu Dhabi Securities Exchange, where its shares are traded.

However, its third quarter net income fell 7.7% to around Dh493m, as credit provisions and loan loss charges climbed 56.5% to Dh384.2m at the end of September.

The increase in provisions is due to the increased charges that ADIB set aside for its exposure to NMC Healthcare, the United Arab Emirates’ largest healthcare provider, during the three-month period, said the group financial director.

The bank, which had provisioned 50 percent of its financing exposure of 1.08 billion dirhams to NMC companies at the end of 2020, increased its coverage rate to 75 percent “out of prudence,” he said.

“From my perspective it can only get better from here, because 75 percent coverage, I think, is very adequate,” he said.

The Abu Dhabi lender expects its exposure to health group financing “to pick up again” in the coming months, “Abdel Bary said.

We have all the magic formulas to be successful so it is very important that when we look at inorganic opportunities they have to be capital accretive and that is still on the table.

Mohamed Abdel Bary, Group Chief Financial Officer, ADIB

Sentiment towards NMC is positive as the company is ahead of its budgets and targets, but “let’s see how it plays out in the next few months,” he said. “When and how, [only] time will tell us.”

In September, NMC Healthcare’s creditors approved its proposed corporate agreement restructuring process, a move that allows 34 companies in the group to step down from administration. NMC got approval for its restructuring proposal from 95% of its creditors, she said at the time.

The ADIB, which on Sunday announced its intention to become the world’s most innovative Islamic lender, is also investing steadily in increasing its digital capabilities.

The bank plans to spend around Dh400m to accelerate its digital transformation this year, after spending around Dh500 on IT investment spending in 2020, Abdel Bary said.

“I think that’s pretty significant if you compare it to the size of the balance sheet and the plans we have.”

ADIB strives for a 20% return on equity by 2025 and this can only be achieved by differentiating its digital offerings and “investing in our digital capabilities to provide simple and easy banking services to our customers. “.

Earlier this year, the bank said it would allow customers to open accounts remotely through facial recognition, becoming the first in the UAE to do so.

In the first nine months of this year, ADIB saw a 30% increase in the number of digitally active customers. Currently, the lender has more than 700,000 digitally enabled customers, with a record 70% active on a daily or weekly basis, he said on Sunday.

Update: November 1, 2021, 3:30 a.m.

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