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بنك أبوظبي الوطني
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3Q2009 Results: Better Than Solid
• NBAD Reported Impressive 3Q2009 Headline Net Income, Up 1% Q-o-Q: NBAD reported headline net income of AED914 million, up 40% Y-o-Y and up 1% Q-o-Q, beating our forecast by 20%. Attributable income was negatively impacted by the interest charge on the Tier 1 bond, while comprehensive income additionally benefited from a strong positive movement in the fair value reserve. The principal positive variances were on non-interest income and provisioning, both of which contributed to the outperformance of the bottom line.
• Total Net Interest Income Rises 11% Q-o-Q, Beating Expectations by 3%: Deposit growth was unimpressive at -1% Q-o-Q, in spite of a strong related party inflow from Government of Abu Dhabi entities. Instead, the main source of funding growth was a USD850 million five-year MTN issuance thriftily priced at a 180 basis point premium to mid-swap rates. This was more than sufficient to provide funding for loan growth of 3%. While the balance sheet modestly outperformed our forecast, a surprise spread expansion lead to the stronger-than-expected net interest income, thanks to falling interest expense.
• Non-Interest Income Strength Continues: Non-interest income turned out to have greater resilience than expected, with fees and commissions registering a record quarter, and investment income doing the same. The strength of fee & commission income is particularly surprising, given the relatively subdued level of loan growth and the continued weakness of capital markets. The only detectable fly in the ointment was weaker foreign exchange gains, which may have been connected to lower trade-related activity, given the potential effect of Ramadan on activity levels.
• Total Deductions Driven By Costs Not Provisioning: Unusually for UAE banks, provisioning actually declined for NBAD (albeit marginally), bettering our expectations by 15%. This, however, was offset by a very strong 13% Q-o-Q increase in costs, particularly driven by branch expansion, with NBAD emphasising “organic expansion throughout the region”.
• Upgrading Short Term Recommendation to Accumulate: the numbers are a mixture of good, volatile numbers, such as investment income, and good core income, such as low provisioning and strong fee income. In light of the strong reported numbers, and the relative underperformance against FGB, in particular, we upgrade our short term recommendation to Accumulate from Neutral.
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