Abu Dhabi Islamic Bank
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Abu Dhabi Islamic Bank established in 1997 is situated in the Abu Dhabi city, UAE. It began conducting commercial operations in 1998 and was officially opened in 1999. Its vision is to possess the leading place in the Islamic financial services realm. The mission of the ADIB is to provide “Islamic financial solutions to the global community” (Abu Dhabi Islamic Bank Official Website, 2013). The milestones of its operations expressed in the core values are transparency in all transactions, hospitality and tolerance, simplicity and sensibility, mutual benefit and Shari'a inspiration. The main shareholders of the Abu Dhabi Islamic Bank are the Abu Dhabi Investment Authority, prominent UAE Nationals, members of the ruling family.
Three pillars that underlie the strategic management of the Abu Dhabi Islamic Bank include:
- Increasing market share and gaining the status of the leader in the UAE banking sector;
- Developing an integrated finance services group with the focus on the Real Estate Management, Takaful insurance, and brokerage;
- Facilitating international growth and presence.
The emphasis is put on the statement “at the heart of ADIB’s customer-centric approach is a Bank-wide focus on customer service excellence” (Abu Dhabi Islamic Bank Annual Report, 2012, p.5)
It is important to recognize that the bank follows its vision, and having 75 branches, it occupies the leading place among Islamic financial services providers in the region (Abu Dhabi Islamic Bank Annual Report, 2012). Abu Dhabi Islamic Bank provides banking and financial services for three different types of customers: business, corporate and personal clients. According to the Bloomberg (2013), the Abu Dhabi Islamic Bank “finances the purchase of automobiles, real estate and capital equipment, offers letters of credit, sponsors investment funds, and offers property management and evaluation services”. Abu Dhabi Islamic Bank conducts all operations in accordance with Islamic law. It means that hoarding, gambling, usury and liquor based lending are strictly avoided.
As it is stated at the Abu Dhabi Islamic Bank Official Website (2013), the bank delivers such services for business as business accounts, business deposits, financial solutions and transactional services such as remittances, foreign exchange services, cheque processing. Corporate services include corporate banking, government and public sector, financial institutions, global transaction services, community banking, e-ADIB corporate. As an ordinary citizen, one can enjoy opening accounts, various financing solutions, Takaful, as well as cards, gold banking, home finance, DANA-women's banking, wealth management. The demand for such services is elastic. The customers have enough opportunities to switch to another bank-competitor with the change in the percentage policy of the current bank.
According to the Abu Dhabi Islamic Bank Annual Report (2012), in 2012 net income of ADIB accounted for AED 1,201 Million, and it increased by 4 percent comparing to the previous year. Total revenues amounted to AED 3,566 Million, which indicated the 4.1 percent growth. Total provisions accounted for AED 802 Million. Comparing to 2008, the Abu Dhabi Islamic Bank showed a significant growth from the AED 851 Million to AED 1,201 Million. Customer deposits volumes increased by 61 percent since 2008. The same positive trend is related to the total assets and customer financing. Such credit ratings agencies as Moody’s Investors Service, Fitch and RAM give long-term ratings A2, A+ and AAA correspondingly. Total customer’s number increased by more than 11 percent and accounted for more than 500, 000 customers. The bank enlarges its presence map due to the operation in Iraq, the United Kingdom and the Kingdom of Saudi Arabia. Moreover, it is planned to establish branches in Sudan and Qatar.
Dividend Indicated Gross Yield is 5.63 percent and the 5 Year Dividend Growth are 8.79 percent. Analyzing the most recent trend in the profit margin of the Abu Dhabi Islamic Bank, it is necessary to point that, in March 2012, the revenue accounted for 1,118.37 (M), net income – 307.156 (M) and profit margin was 34.0264 percent. In March 2013, these figures were improved. The revenue accounted for 1,129.389 (M), net income was equal to 339.217 (M), and the profit margin indicator was 35.3086 percent (Bloomberg, 2013).
Mehta (2012) underlines that all UAE banks and ADIB in particular were affected by the financial crisis of 2007-2008, and their profitability was reduced “primarily due to the reduced margins, slower growth and growing NPA’s” (p.386). However, it is necessary to notice that currently, ADIB takes the leading position among all UAE banks relating to the level of liquidity. Customer financing to deposits ratio amounts to 83.5 percent, advances to stable funds ratio accounts for 75.7 percent. Net due from deposits and banks with Central Bank is equal to AED 15.7 billion (Zawya, 2013).
The main competitors of the Abu Dhabi Islamic Bank are located in Dubai. They are Emirates NBD (ENBD), Dubai Islamic Bank (DIB), Commercial Bank of Dubai (CBD) and Mashreq Bank (MB). These are four largest listed banks regarding the total assets amounting to more than 90 percent of Dubai’s total the banking system assets and constituting almost a half of Gross Domestic Product of UAE in 2010. In Abu Dhabi, the main competitors are First Gulf Bank (FGB), Union National Bank (UNB), National Bank of Abu Dhabi (NBAD), Abu Dhabi Commercial Bank (ADCB) (Deloitte, 2011).
Regarding the market share in different sectors of the banking system, it should be pointed out that Abu Dhabi Islamic Bank has 6 percent of total assets in the UAE banking sector. The leaders here are ENBD with 21 percent and NBAD with 16 percent. Percent of total liabilities of the Abu Dhabi Islamic Bank accounts for 6 percent. The similar lowest percentage of the liabilities is shown by the UNB and MASHREQ. Interbank assets hold by the Abu Dhabi Islamic Bank is equal to the 12 percent of the total interbank assets. Abu Dhabi Islamic Bank has 7 percent of loans out of total banking loans. ENBD with 21 percent and NBAD with 15 percent are the major players. Regarding the number and the volume of deposits, Abu Dhabi Islamic Bank takes the seventh place out of the 10 main banks in the UAE and has 7 percent of the total banking system deposits (International Monetary Fund, 2012).
It should be stated that it is a high level of fragmentation in the banking sector in the United Arab Emirates. It is represented by 23 domestic banks and 28 foreign banks. Banks that have a lion’s market share operate mainly in Dubai and Abu Dhabi. Regarding the stability and soundness of the UAE banking sector, it should be stated that “funding and liquidity pressures remain on the banking system, with the average loan/deposit ratio for some major banks above 100% and in some cases above 120%” (Deloitte, 2011, p. 18).
It is necessary to underline that UAE national banking system remains stable. Between 2007 and 2011, return on assets is equal to an average 1.5 percent. At the same time, return on equity decreased and accounted for 11.7 percent in 2011 comparing to the 14.1 percent in 2007. NPLs increased reflecting the higher needs for additional provisions for real estate loans. The level of banking system capitalization in UAE is sufficient to provide stability; the same can be stated about the level of profitability. The UAE banking system capital buffers and liquidity are adequate to withstand economic volatility (International Monetary Fund, 2012).