NBAD Reports 3Q / 9M 2016 Results

[Pages:11]26 October 2016

NBAD Reports 3Q / 9M 2016 Results

Solid Performance in Challenging Environment

3Q'16 Net Profits of AED 1.320 Billion Cumulative profits in 2016 for first nine months at AED 3.967 Billion

3Q'16 Revenues of AED 2.684 Billion Continuing underlying strength in Retail & Global Wholesale flow products

Disciplined Expense Management: JAWS up 5% y-o-y in 3Q'16

Customer Loans of AED 205 Billion: down 3% y-o-y, up 1% sequentially UAE Retail lending up 15% y-o-y, continuing to outpace market

Strong Liquidity: Loans-to-Deposit ratio 85% International contributed 35% of total deposits; CASA 30% of total

REVENUESR(AoEbD umsn)t Capital Ratios with Tier-1 atN15E.T5%PROFITS (AED mn)

QoQ -3%; YoY +3%

YoY +1%

QoQ -4%; YoY

YoY -5%

2,597 2,759 2,684

7,999 8,094

1,326 1,376 1,320

4,196 3,967

3Q'15 2Q'16 3Q'16 9M'15 9M'16

3Q'15 2Q'16 3Q'16 9M'15 9M'16

National Bank of Abu Dhabi (NBAD) reported net profits of AED 1.320 billion for 3Q'16, flat year-over-year (y-o-y) and down 4% sequentially. During the period, strong underlying growth trends and solid investment income were offset by a seasonal slowdown and ongoing challenging market conditions.

For 9M'16, net profits were down 5% y-o-y due to lower investment gains and higher impairment charges , despite growth in

strategic businesses and overall stronger operating profits.

Expenses were down 2% y-o-y and down 1% q-o-q in 3Q'16 as the Bank continues to tightly control expenses whilst also investing in talent, operations and infrastructure.

Loans were AED 205 billion, up 1% sequentially and down 3% y-o-y. Lending growth in 3Q'16 was led by Global Wholesale, while Retail lending grew both q-o-q and y-o-y. CASA improved 4% on a

y-o-y basis while the Bank continued to attract more deposits from our international clients.

In 3Q'16, the Bank continued to maintain its strong liquidity and robust capital positions, with a Tier-1 ratio of 15.8% and strong credit ratings.

Return on Shareholders' Funds (RoSF) in 3Q'16 and 9M'16 was 13.4% as it continues to be impacted by challenging market conditions.

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NBAD FINANCIAL HIGHLIGHTS ? 3Q / 9M 2016

Income Statement - Summary

(in AED million)

Net interest income

(incl net income from Islamic financing)

Non-interest income Total Revenues UAE Gulf & International

Operating expenses Operating Profits Impairment charges, net Taxes NET PROFIT

Quarterly 3Q 2016 2Q 2016 3Q 2015

1,807 1,837 1,834

QoQ % -1.6

YoY % -1.4

877 2,684 2,145

540

922 2,759 2,227

532

763 2,597 2,061

536

-4.9

14.9

-2.7

3.4

-3.7

4.1

1.5

0.7

(1,000) (1,009) (1,017)

-0.9

-1.7

1,684 1,751 1,580

-3.8

6.6

(287) (298) (171) -3.6 68.0

(77)

(76)

(82)

0.3

-6.7

1,320 1,376 1,326

-4.1

-0.5

Year-to-date

9M 2016 9M 2015 5,475 5,463

YoY % 0.2

2,618 2,536

3.3

8,094 7,999

1.2

6,482 6,367

1.8

1,612 1,632

-1.3

(3,017) (3,044) -0.9

5,077 4,955

2.5

(880) (507) 73.5

(230) (252) -8.9

3,967 4,196

-5.4

Revenues by Business

Quarterly

Year-to-date

(in AED million)

3Q 2016 2Q 2016 3Q 2015 QoQ % YoY % 9M 2016 9M 2015

Global Wholesale (GWB)

# 1,355 1,391 1,287

-2.6

5.3

Global Retail & Commercial (GRC)

# 1,066 1,126 1,020

-5.4

4.5

Global Wealth (GW)

# 224

233

243

-3.6

-7.6

Head Office (HO)

#

39

10

47 310.6 -17.3

Total Revenues

2,684 2,759 2,597

-2.7

3.4

Note: During the period, the Group has changed the basis of allocation around centrally held profit & losses and other inter-segmental allocations resulting in a restatement of comparative segmental information

4,103 3,284

682 25

8,094

3,929 2,992

773 305 7,999

YoY %

4.4 9.8 -11.8 -91.8 1.2

Key Ratios

3Q 2016 2Q 2016 3Q 2015 QoQ (bps) YoY (bps)

Return on Equity

12.0% 13.0% 12.7% -101

-68

Return on Shareholders' Funds 1

13.4% 14.7% 14.3% -127

-95

Cost-Income ratio

37.3% 36.6% 39.2%

70

-192

Net Interest Margin2

1.89% 1.94% 2.04%

-5

-15

Return on Risk Weighted Assets

1.88% 1.98% 1.96%

-10

-8

Tier-I ratio (YTD)

15.8% 15.5% 15.6%

31

20

Capital Adequacy ratio (YTD)

17.0% 16.4% 16.5%

56

49

1- excl Tier-I capital no tes and interest thereo f 2 - annualised; based o n daily average o f perfo rming assets

9M 2016 9M 2015 YoY (bps)

12.0% 14.0% -199

13.4% 15.6% -223

37.3% 38.1%

-78

1.95% 2.03%

-8

1.90% 2.14%

-24

15.8% 15.6%

20

17.0% 16.5%

49

Balance Sheet - Summary

(in AED billion)

Assets Customer Loans Customer A/c's & other deposits CASA (deposits) Equi ty Contingencies (Trade & Market)

Sep-16

414.9 205.3 242.9 74.0 45.0 1,542

Jun-16

419.4 202.9 243.3 74.6 43.0 1,536

D e c-15

406.6 205.9 233.8 71.3 43.2 1,291

Se p -15

404.7 212.1 235.0 71.0 42.0 1,339

- Trade co ntingencies are defined as LCs & LGs; M arket co ntingencies reflect no minal value o f FX co ntracts & derivatives - Equity includes Tier-I capital no tes

QoQ % Ytd % YoY %

-1.1

2.1

2.5

1.2 -0.3 -3.2

-0.2

3.9

3.3

-0.8

3.8

4.2

4.5

4.0

7.0

0.4 19.4 15.1

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"NBAD continues to perform well, with strong underlying growth and disciplined cost management being two highlights this quarter. As we progress towards our merger with FGB, it is vital that we maintain stability of funding and consistent growth of the core business, which I am confident we will achieve.

"Our merger with FGB is progressing well. A new leadership team has been appointed for the combined bank, and we are beginning to put in place the strategy which will ensure continued growth and enhanced value for all of NBAD's stakeholders going forward."

H.E. Nasser Alsowaidi

Chairman of NBAD

Abhijit Choudhury

Acting Group Chief Executive

"We delivered a solid set of results in the third quarter reflecting continued underlying strength in our core businesses. We achieved this performance during a period of seasonal slowdown and ongoing challenging market conditions, whilst we continued to maintain expense discipline along with strong capital and liquidity positions.

In Global Wholesale Banking, we delivered growth across strategic flow businesses as our transformation towards an originate to distribute model continues to take effect. Additionally, our Retail lending business continued to outperform in the domestic market.

"Looking ahead to the rest of the year, we are aiming to continue to deliver solid underlying net profit growth while maintaining our conservative risk profile. The core businesses will continue to drive growth, and we expect to cross a number of important integration milestones in the merger with FGB, which is on track to complete in the first quarter of 2017."

Page - 3 - of 11

Strong growth in strategic businesses impacted by challenging operating environment

8% 1%

51%

(3Q'16)

Revenues

40%

AED 2.68bn

8% 0% 61%

(3Q'16)

Operating Profits AED 1.68bn

31%

20% 80%

(3Q'16)

Revenues AED 2.68bn

Global Wholesale Global Wealth

Global Retail & Commercial Head Office

UAE Gulf & Int'l

GLOBAL WHOLESALE BANKING

Global Wholesale Banking (GWB) delivered revenue growth of 5% y-o-y in 3Q'16 buoyed by growth across strategic flow businesses as transformation towards an originate to distribute model for core customers continues to take effect. Sequentially, revenues were down 3%, reflecting seasonal volatility and softness in the relationship loan market. Disciplined expense management, with a focus on efficiency, saw costs decline 4% y-o-y with a marginal increase of 1% sequentially in the quarter.

GWB's balance sheet remains strong with customer deposits increasing 10% y-o-y as we continue to utilise our Wholesale network to increase liquidity. Despite challenges, loan growth increased marginally by 2% q-oq, while the y-o-y decline of 5% was influenced by the Bank's move away from FI Trade (Financial Institutions Trade lending) towards higher yielding assets.

Global Banking's continued focus on its Cash Management proposition drove liquidity improvement of 12% y-o-y and 9% q-o-q.

Global Markets Sales continued to maintain revenue momentum with a focus on providing quality yield solutions for financial institutions, non-banking financial institutions and corporate customers as well as increasing flows across locations. The diversified nature of the business ensured that the flow trading and

Investment book's performance helped weather the heightened market volatility and credit conditions.

Highlights from 3Q'16 include: "Most Innovative Investment Bank in the Middle

East" by The Banker ? NBAD is the first ever regional bank to win this prestigious award recognising our strengths in bonds, loans and Sukuk

Best Treasury and Cash Management Provider in the Middle East by Global Finance

"Best Sukuk House of the Year 2016" in the Global Islamic Finance Awards. NBAD won this same award in 2015 and is first ever winner in successive years.

Significant DCM deals on which NBAD was Joint Bookrunner: - State Bank of India - $300m AT1 30NC5 ? first ever international hybrid capital offering from India & NBAD's maiden bond mandate from India - Burgan Bank - $500m 5yrs senior bond ? first ever senior bond issue by a Kuwaiti financial institution - Emaar Properties - $750m 10yrs Sukuk ? lowest ever coupon on a Sukuk from a UAE corporate issuer - Sultunate of Oman - $1.5b reopening of 2021 + 2026 bonds ? largest ever tap issue by a GCC name

Page - 4 - of 11

GLOBAL RETAIL & COMMERCIAL

Global Retail and Commercial (GRC) 3Q'16 revenues grew 4% y-o-y, mainly driven by retail product sales and commercial trade business in the UAE. On a sequential basis, revenues were lower by 5% due to lower interest in suspense (IIS) recoveries. Operating expenses in 3Q'16 continue to be well managed, declining 8% y-o-y and 2% q-o-q.

Retail lending grew 13% y-o-y (15% y-o-y in the UAE) and 2% q-o-q, backed by strong sales performance and customer acquisition, particularly in mortgages. Robust growth in Commercial trade revenues contributed to higher interest and FX income.

During the quarter, restructuring of the SME business was completed with stronger risk controls put in place and proactive management of the existing loan programs and working capital portfolio by Relationship Managers. GRC also revamped its Operational Risk

framework and fully integrated the credit bureau process across the business.

Highlights from 3Q'16 include: ? Successfully launched the newly designed Retail

online banking system for customers in August 2016 with enhanced functionality and simplified access

? E-Dirham, MoF's national electronic payment system, launched with NBAD as a banking partner, received the "Special Merit Award" for Government to Business and Customer (G2BC) Engagement from Terrapin Middle East during the Cards and Payments Middle East 2016 event

? Launched reward and recognition campaign within Commercial to encourage and incentivise sales lead referrals and cross-sell initiatives

? NBAD was the Presenting Partner of SME Beyond Borders Oman conference for the second year running

GLOBAL WEALTH

Global Wealth revenues in 3Q'16 were down 4% sequentially to AED 224 million following challenging market conditions and FX depreciation which continue to impact the revenues of the business on a year-todate basis as well (down 12% in 9M'16 vs 9M'15). Resultant declines in local trading volumes and market volatility continue to impact the Securities and Asset Management businesses in 2016. The Global Private Banking business continues to generate underlying growth as it continues to build momentum with strong client acquisition and successful diversification of its client base and remains focused on its strategy to be the best private bank in the Arab world.

Highlights from 3Q'16 include: NBAD MENA Dividend Leader and NBAD MENA Bond

Fund continue to be largest mutual funds in our tracked peer groups

NBAD Securities achieved 8.2% of market share during that time with AED 5bn of traded value

UAE Private Bank, Global Asset Management & NBAD Securities businesses continue winning key industry awards

Page - 5 - of 11

Strong core revenue growth offset by challenging market conditions

(in AED million)

Net interest income

(including income from Islamic financing)

Fees & Commissions, net FX and Investment income, net Other operating income Total Non-Interest Income

Total Revenues

3Q 2016 2Q 2016 3Q 2015 QoQ % YoY %

1,807 1,837 1,834 (1.6) (1.4)

512 357

8 877 2,684

610 307

5 922 2,759

492 270

1 763 2,597

(16.0) 16.3 40.9 (4.9) (2.7)

4.2 32.2 459.7 14.9 3.4

9M 2016 9M 2015 YoY %

5,475 5,463

0.2

1,693 903 22

2,618 8,094

1,569 904 62

2,536 7,999

7.9 (0.1) (64.9) 3.3 1.2

Net interest income (including income from Islamic financing) (NII) was AED 1.807 billion in 3Q'16, down 2% q-o-q and 1% y-o-y. Decline in NII was due to lack of lending growth coupled with higher interest expenses, both q-o-q and y-o-y.

Net fees and commissions (F&C) for the quarter were AED 512 million, down 16% sequentially and up 4% y-o-y. The decline in 3Q'16 vs 2Q'16 was primarily due to a seasonal slowdown in fees earned on corporate and retail lending. At the same time, continued strength in fee income on derivatives in Global Markets is

evident as its contribution to net F&C has increased from 2% in 9M'15 to 7% in 9M'16.

FX and investment income was AED 357 million in 3Q'16, up 16% sequentially and 32% y-o-y, reflecting higher investment gains.

Other operating income was AED 8 million in 3Q'16, while the decrease in 9M'16 to AED 22 million from AED 62 million in 9M'15 was due primarily to one-time gains recorded in 2Q'15.

Movement in Revenues (AED mn)

+12

7,999

+124 -1

-40

8,094

9M 2015

Net Int Inc & Income Fees & Commissions, FX & Investment

from Islamic financing

net

income, net

Other operating income

9M 2016

In 9M'16, Net interest margin* declined 8bps y-o-y to 1.95% as positive underlying trends were largely offset by the impact of excess liquidity and lower interest in suspense recoveries. Overall, trends in our customer asset and investment portfolio remained positive due to a combination of positive repricing in the UAE loan market and growth in retail assets. These factors were offset by the dilution caused by excess short dated liquidity, which was placed conservatively at Central Banks' (deposit facilities) and other financial institutions.

Gross Lending Yield

Deposits & Term borrowings Cost

NIM(in %)

3.33

3.27

3.23

3.23

3.48

3.45

3.48

2.04

2.03

2.03

2.01

2.02

1.98

1.95

0.61

0.60

0.61

0.62

0.73

0.72

0.74

1Q'15

1H'15

9M'15

FY'15

1Q'16

1H'16

9M'16

* annualised and year-to-date; based on daily average outstanding balances for performing assets

Page - 6 - of 11

Discliplined cost management continues; expenses relatively flat over last 7 quarters

(in AED million)

Operating Expenses

3Q 2016 2Q 2016 3Q 2015 QoQ % YoY % 1,000 1,009 1,017 (0.9) (1.7)

9M 2016 9M 2015 YoY % 3,017 3,044 (0.9)

Operating expenses for the quarter were AED 1.0 billion, down 1% q-o-q and 2% y-o-y, reflecting continued expense discipline. The investment focus continues to be expanding client service capabilities and enhancing the IT infrastructure of the business, and the impact of these investments is evident in revenue

growth in key targeted areas in the Bank's Global Wholesale flow products and Retail businesses. The cost to income ratio of 37.3% for 3Q'16 represents a decline from 39.2% in 3Q'15 and is slightly higher than 36.6% in 2Q'16.

Movement in Expenses (AED mn)

-20

3,044

-5

-2 3,017

9M 2015

Staff Costs

Other expenses*

* Other expenses include general and administration expenses, donations and charity

Depreciation

9M 2016

Increase in impairment charges driven by challenging operating environment and prudent provisioning

(in AED million)

Impairment charges, net

3Q 2016 2Q 2016 3Q 2015 QoQ % YoY %

287

298

171 (3.6) 68.0

9M 2016 9M 2015 YoY %

880

507 73.5

a s a % of Gros s Loa ns * a s a % of Opera ti ng profi ts

* annualised ; Gro ss lo ans net o f suspended interest

bps

bps

0.54% 0.57% 0.31%

-3

23

17.0% 17.0% 10.8%

3

623

bps

0.55% 0.31%

25

17.3% 10.2%

710

Net impairment charges in 3Q'16 were AED 287 million, up 68% y-o-y and down 4% q-o-q. The Bank's impairments are reflective of the ongoing challenging operating environment. Results are in line with guidance and continue to reflect NBAD's prudent provisioning approach.

Cost of risk (CoR) (annualised) was 54bps in 3Q'16, roughly in line with 1Q'16 (54bps) and 2Q'16 (57bps), and up y-o-y from 31bps in 3Q'15 as the Bank manages through a more challenging credit environment. CoR for 9M'16 was 55bps, in line with guidance for 2016.

Collective provisions continue to be maintained above the Central Bank of UAE's minimum requirement of 1.5%.

Non-performing loans, net of interest in suspense, were marginally higher by AED 8 million at the end of 3Q'16 to AED 5.773 billion. NPL ratio at the end of 3Q'16 was 2.73% of the gross loan book.

Total provisions were AED 6.342 billion and represented 110% of non-performing loans.

Cost of Risk* (%)

0.57 0.57 0.55

0.43

0.44

0.33 0.30 0.31

Provisions & NPLs (AED Mn)

NPLs Specific Prov Collective Prov

2015

2,088

105% of NPLs

4,037 5,847

6,125 2.76% of Gross Loans

FY'14 1Q'15 1H'15 9M'15 FY'15 1Q'16 1H'16 9M'16

* annualised and YTD; as a % of gross loans (net of interest in suspense)

9M 2016

2,361

110% of NPLs 3,982 5,773

6,342 2.73% of Gross Loans

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NBAD's balance sheet is characterised by strong liquidity, funding and robust capital position

Sep'15

Sep'16

(in AED Bn)

+2%

405 415

-3%

212 205

+4%

235 243

+7%

42 45

+15%

1,542 1,339

CASA

71 74

Assets

Loans

Custo20m15er2A0/16Cs & other Deposits

Equity

Contingencies

Contingencies (Trade & Market) - Trade contingencies defined as LCs and LGs; Market contingencies defined as the notional amount of derivatives

Assets were AED 415 billion at the end of 3Q'16, down 1% sequentially, but up 2% year-to-date (ytd).

Net Loans and advances were AED 205 billion, up 1% sequentially and flat year-to-date (ytd). Y-o-Y decline of 3% in lending was driven partially by the Bank's move away from FI Trade towards higher yielding assets as part of its ongoing balance sheet optimisation.

Customer accounts and other deposits were AED 243 billion, flat sequentially and up 4% ytd on increase in core client deposits, generated in large part due to the strength of our international business and execution of our strategy. CASA was AED 74 billion, down 1% sequentially and up 4% y-o-y, representing 30% of total customer accounts and deposits.

Equity, consisting of shareholders' funds of AED 38.2 billion and perpetual Tier-I capital notes of AED 6.75 billion, was up 4% q-o-q and ytd; up 7% y-o-y at the end of 3Q'16.

Basel-II ratios, in accordance with UAE Central Bank's framework, remain strong and well above the minimum 12% and 8% (Tier-I), with a capital adequacy ratio of 17.0% and a Tier-I ratio of 15.8% as of 30 September 2016.

Liquidity & Funding: The Bank's liquidity position and Loan-to-Deposit ratio remain strong. The Bank is continuing its focus on diversification and extending the liability profile, and has continued to execute selective private debt transactions in 3Q'16. In early October, the Bank issued its first Formosa bond (USD bond listed in Taiwan) structuring it as a multi-callable zero coupon bond for an amount of USD 696 million with a maturity of 30 years. This was a successful landmark issuance, demonstrating NBAD's prominent position and innovative approach amongst MENA issuers to raise funding from new investors in new geographies.

The Bank is pleased to announce that it has become the first regulated entity within the UAE to gain approval from the Central Bank of UAE to formally adopt the LCR (Liquidity Coverage Ratio) in the 4th Quarter as its official liquidity regulation.

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