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ADCB profit slumps after $292m impairments for NMC, Finablr

ADCB was a major lender to NMC Health with an exposure of about $981 million to the company.

Abu Dhabi Commercial Bank (ADCB) reported on Thursday first quarter net profit of Dh1.281 billion, excluding impairment charges on NMC Health Group, Finablr and associated companies.

The bank said net profit at Dh209 million was lower on account of impairment charges on the corporate loan book related to NMC Health Group, Finablr and associated companies while its first-quarter operating profit rose 8.0 per cent excluding integration costs driven by higher revenues and merger synergies.

 ADCB, which is the largest creditor to NMC Health, recently reported an exposure of Dh3 billion to the debt-ridden hospital operator and had initiated criminal legal proceedings against the company’s founder and five other senior officials, alleging forgery and fraud.

"Excluding the Dh1.072 billion impairment charges related to NMC Health Group, Finablr and associated companies, impairment charges in first quarter were 11 per cent lower quarter-on-quarter and 9.0 per cent higher year on year. Impairment charges in the quarter totalled Dh1.882 billion

The bank said in a statement that net interest and income from Islamic financing increased 6.0 per cent year on year to Dh2.789 billion on account of improved cost of funds. Interest expense improved 29 per cent year on year to Dh1.606 billion. "This reflects the resilience of the ADCB franchise despite the difficult environment due to Covid-19 and low oil prices in the latter part of first quarter."

The bank distributed Dh2.644 billion in dividends to shareholders in the first quarter as total shareholders’ equity at the end of the quarter stood at Dh49 billion. Net loans stood at Dh247 billion and customer deposits at Dh263 billion as at 31 March 2020, it said. 

Ala’a Eraiqat, ADCB’s group chief executive officer and board member, said underlying business remained robust in the first quarter. "However, net profit was lower at Dh 209 million on account of higher impairment allowances. The higher expected credit losses were related to the current macro-economic challenges as well as to NMC Health Group, Finablr and associated companies, after the healthcare group revealed suspected fraudulent activity and previously undisclosed liabilities of over $ 4 billion. We believe that the impairment allowances for this exceptional case are adequate based on currently available information. We are also taking various additional cost and efficiency measures to partially offset the impact of these provisions.

"It is important to note that provisions related to NMC Health Group, Finablr and associated companies are taken in accordance with international accounting standards and do not equate to a write-off of this amount. ADCB will pursue all possible avenues and legal routes to recover these funds and to uncover how the fraud was conducted," said Eraiqat. 

"Our swift actions resulted in the appointment of administrators by the UK High Court to ensure continuation of uninterrupted healthcare services and recover any missing assets and funds. ADCB is working towards a positive financial resolution, engaging with the court-appointed joint administrators through a leading role on the committee of core creditors," he said. 

Deepak Khullar, group chief financial oficer, said following the merger and successful integration with UNB and Al Hilal Bank, ADCB is demonstrating its preparedness and resilience in the face of unprecedented global health and economic challenges. 

"The bank benefits from a diversified funding mix and stable low-cost Casa (current account saving account) deposits accounting for 41 per cent of total customer deposits of Dh263 billion. ADCB maintains robust capital and liquidity positions that are comfortably above regulatory requirements, with a capital adequacy ratio of 14.13 per cent, a CET-1 ratio of 10.82 per cent and liquidity coverage ratio of 115.1 per cent as at 31 March 2020," said Khullar.