Abu Dhabi Islamic Bank

24 July 2015 Results Review Abu Dhabi Islamic Bank Andreas Kuehrer Research Analyst (65) 6818 7294 Andreas.Kuehrer@BankofSingapore.com UAE Banks Recommendation: BUY Credit Direction: Neutral Background Abu Dhabi Islamic Bank (ADIB) is a leading Islamic bank with a solid franchise in the UAE market with total assets of AED 115 billion. ADIB is with a market share of 4.4% (in terms of assets) the 9th largest bank. Over the last 3 years the bank has been expanding its balance sheet more rapidly than its peers. As a result of this the bank s earnings from retail activities represent more than 65% of operating income. The bank s strategy is to establish itself as a dominant player in the global Islamic banking industry. Established in 1997 with the support of Abu Dhabi government, ADIB has become the second largest Islamic bank in the UAE, after Dubai Islamic Bank and the 4 th largest globally. Approximately, 40.03% of ADIB s shares are held by Emirates International Investment Company a holding company owned by member of the Abu Dhabi royal family of the balance, others member and associates of the Abu Dhabi Royal family own 10.1% the Abu Dhabi Investment Council owned 7.6%, the UAW pension fund 2.3%, while majority of the remainder is held by over 47,000 individual UAE nationals. The bank is currently rated A2 by Moody s and A+ by Fitch. Non-Performing Loans in % - 1H 15 Tier 1 ratio (Basel II) 1H 15 % 15.00 14.00 13.00 12.00 11.00 10.00 9.00 8.00 7.00 6.00 5.00 4.00 3.00 2.00 1.00-10.90 11.50 10.40 8.30 4.40 4.10 2010 2011 2012 2013 2014 1H '15 % 20 10 0 2011 2012 2013 2014 1H '15 Source: Company Data 1

Results ADIB reported 1H 15 net profit of AED 953 million 10% up year-on-year, underlining the bank s strong position across all customer segments. Operating income was up 6% year-on-year and in line with market expectations. Most of the beat was driven by strong growth in fee income (+23% year-on-year) and Investment income (+18% year-on-year). Net financings grew 15% year-on-year, broadly in line with market expectations. Deposits were up 5% within the first six months of 2015, taking the full year growth to 13%. Accordingly, the bank s financing-to-deposits ratio remained almost the same at 86.5% as of June 2015. The bank saw a significant improvement in asset quality during the last 12 months with NPL ratio dropping to around 4.1% from above 11.5% in FY11, while the NPL coverage ratio improved to 88.3% with the bank keeping its provisioning at a relatively high level. The bank remains strongly capitalized with a Tier I ratio of 13.47% and a CAR of 14.01% (down from 21.4% in FY12). ADIB's fast growing asset base and the acquisition of Barclay's UAE retail banking business have put pressure on the CAR). In addition, ADIB remains one of the most liquid banks in the UAE with advances/stable funds ratio of 87% as of June 2015. Conclusion & Recommendation ADIB reported 1H 15 net profit of AED 953 million 10% up year-on-year, underlining the bank s strong position across all customer segments. The financial performance, which included the cost of acquiring and converting Barclay's UAE retail banking business, was underpinned by the main banking business in the UAE. We view credit direction over the next 6-12 months as neutral. Currently trading at 104.3 or 4.6% YTC, we maintain our Buy recommendation on ADIB with a fair value of 105. The ADIB 6.375% Tier 1 remains a good bond to hold as risk exposure to the UAE banking sector. 2

Abu Dhabi Islamic Bank Financial and Ratio Summary Issue Maturity Moody's 6.375% notes 1,000 Perpetual NR/NR NR/NR 105.00 4.68% 5 BUY AEDm Balance Sheet S&P Jun-14 Sep-14 Dec-14 Mar-15 Jun-15 Dec-13 Dec-14 2Q14 3Q14 4Q14 1Q15 2Q15 2013 2014 Loan Portfolio 67,757 73,996 75,173 74,518 77,095 65,324 75,173 77,095 Total Deposits 79,029 82,936 84,776 87,602 89,084 75,524 84,776 89,084 Total Liquid Assets 27,262 22,337 24,955 26,918 21,767 28,679 24,955 21,767 Non Performing Loans 918 1,039 428 389 414 1,169 428 414 Provision for Loan Losses 3,332 3,414 2,883 2,938 2,902 3,491 2,883 2,902 Total Assets 105,666 108,962 111,904 114,061 115,077 103,160 111,904 115,077 Shareholders' Equity 12,947 13,431 13,678 14,066 13,712 13,018 13,678 13,712 Income Statement Net Interest Income (incl. Provision 681 367 1,213 741 743 2,465 2,850 3,064 Net Interest Income (Excl. Provision) 841 922 945 941 919 3,066 3,505 3,726 Loans Written Off 412 115 630 145 211 338 1,273 1,102 Net Profit 454 476 409 450 502 1,448 1,747 1,837 Profitability Analysis Return on Assets 1.7% 1.7% 1.5% 1.6% 1.7% 1.4% 1.6% 1.6% Return on Equity 14.0% 14.2% 12.0% 12.8% 14.6% 11.1% 12.8% 13.4% Net Interest Margin (Incl. Provision) 3.8% 1.9% 6.2% 3.8% 3.7% 3.6% 3.7% 3.8% NIM (Excluding provisions) 4.7% 4.8% 4.8% 4.9% 4.6% 4.5% 4.5% 4.7% Efficiency ratio/cost to Income ratio 41.7% 42.3% NA 46.6% NA 43.3% 45.3% NA Loan portfolio quality NPL/Total Loans (reported by ADIB) 7.1% 6.2% 4.4% 4.4% 4.1% 8.3% 4.4% 0.5% Provision for NPL to NPLs 363.1% 328.6% 674.3% 754.7% 701.4% 298.6% 674.3% 701.4% Loans Written off/total Loans 2.4% 0.6% 3.4% 0.8% 1.1% 0.5% 1.7% 1.4% Capitalization Shareholder's Equity/Total Assets 12.3% 12.3% 12.2% 12.3% 11.9% 12.6% 12.2% 11.9% Capital Adequacy Ratio 15.8% 14.3% 14.4% 14.7% NA 16.9% 14.4% NA Tier 1 Capital Ratio 15.3% 13.9% 13.9% 14.3% % 16.4% 13.9% % Risk w eighted assets 81,978 90,322 92,235 92,730 95,368 77,568 92,235 95,368 Statutory total capital adequacy min 12.0% 12.0% 12.0% 12.0% 12.0% 12.0% 12.0% 12.0% Statutory minimum Tier 1 requirement 8.0% 8.0% 8.0% 8.0% 8.0% 8.0% 8.0% 8.0% Liquidity Ratios Amount (US$) Loans/Deposits 85.7% 89.2% 88.7% 85.1% 86.5% 86.5% 88.7% 86.5% Liquid Assets/Total Assets 25.8% 20.5% 22.3% 23.6% 18.9% 27.8% 22.3% 18.9% Loans/Total Assets 64.1% 67.9% 67.2% 65.3% 67.0% 63.3% 67.2% 67.0% Rating Bid Price YTC BoS Risk Rating Rec. LTM Source: Company Reports and Bloomberg 3

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