Abu Dhabi Commercial Bank : 2024 First Quarter Earnings Call Transcript

ABU DHABI COMMERCIAL BANK PJSC

adcb.com/ir

First quarter 2024

Earnings call transcript

Hosted by JPMorgan (Naresh Bilandani) Date: Thursday, 25 April 2024

Time: 16:00 UAE time

Abu Dhabi Commercial Bank

First quarter 2024 earnings call transcript

Operator: Hello all, and welcome to Abu Dhabi Commercial Bank's First Quarter 2024 Results Earnings Call. My name is Lydia, and I'll be your operator today. If you'd like to ask a question during the Q&A, you can do so by pressing star, followed by the number one on your telephone keypad. I'll now hand you over to your JPMorgan host, Naresh Bilandani, to begin. Please go ahead.

Naresh Bilandani: Thank you. Good day, everyone. It's Naresh Bilandani from J.P. Morgan. I would like to welcome you all to this First Quarter 2024 Results Call of Abu Dhabi Commercial Bank, which J.P. Morgan is very pleased to host. I'll pass it on now to Harsh, the Head of Investor Relations for ADCB, to introduce the Management and commence the presentation. Harsh, over to you.

Harsh Vardhan: Thank you, Naresh. Good afternoon, ladies and gentlemen. I would like to welcome you to this call on ADCB's first quarter financial results, which were published earlier today. Please refer to our earnings presentation on the Investor Relations page of our website. I'm joined today by Deepak Khullar, our Group CFO, Robbert Muller, Group Treasurer, Paul Keating, our Group Chief Risk Officer, and Monica Malik, our Chief Economist. We will be taking you through key financial, strategic and operational highlights before opening the floor for questions. I will now hand over to Deepak to begin the presentation from slide 5 to provide an overview of our quarter one performance.

Deepak Khullar: Thank you, Harsh, and good afternoon, everyone, and thank you for joining us today. We are pleased to report that ADCB has maintained growth momentum into 2024 in the context of robust UAE and macroeconomic fundamentals. The Bank reported strong results in quarter one, reflecting solid growth across core businesses in line with our strategy to increase market share. ADCB delivered a net profit before tax of AED 2.43 billion in the first quarter, an increase of 26% year on year. The net profit comparison is shown on a pre-tax basis to ensure comparability with prior year.

For the Bank, the UAE corporate tax of 9% commenced on 1st January 2024. After tax, net profit was AED 2.14 billion, representing a return on average tangible equity of 14.1%. This strong performance was broad based and supported by net loan growth of 5% sequentially and 21% year on year with AED 41 billion of new credit extended in the quarter, excluding repayments.

On the retail side, the portfolio of personal loans, auto loans and mortgages has expanded substantially over the last 12 months, supported by customer acquisition on digital platforms. The Corporate and Investment Banking business, CIBG, is also driving accelerated loan growth, particularly to GREs, while achieving higher fee income. We are making progress on the opening of a branch in Saudi Arabia, which complements CIBG's approach to deepening banking relationships across key regional economic corridors. Meanwhile, ADCB continues to attract significant deposit inflows. Total customer deposits increased by 6% from December and 24% year on year. We're particularly pleased to have attracted AED 12 billion of CASA deposits, outpacing growth in term deposits during the quarter.

The Bank continues to achieve efficiencies throughout the organisation. The cost to income ratio improved to 30.9% in quarter one, a reduction of 60 basis points from a year earlier and 110 basis points on the previous quarter. Cost of risk was 67 basis points, well within our guidance, and our balance sheet remains robust with key capital ratios strengthening.

We continue to make good progress on sustainability. Our focus in the coming months will be on implementing our roadmap for meeting commitments under the Net-Zero Banking Alliance (NZBA), which ADCB joined in November.

On slide 6, you will find a snapshot of our income statement. Operating income was up 17% year on year to AED 4.59 billion, and operating profit was up 18% from a year earlier to AED 3.17 billion. Impairment charge was broadly flat year on year and down 36% sequentially, on account of higher provisioning on a few corporate accounts in quarter four of 2023. Excluding the one-off gain of AED 490 million on the divestment of a majority stake in ADCP in quarter four, profit before tax on an underlying basis was up 21% sequentially.

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On slide 7, you will find details on margins and risk-adjusted NIM. The Bank has achieved strong loan growth over the last 12 months in a higher interest rate environment. However, NIM declined 6 basis points year on year to 2.7% due to a greater representation of time deposits in the funding mix and increased exposure to the lower-risk government and public sector enterprises. In this context, it is worth noting that risk-adjusted NIM increased 3 basis points year on year and 12 basis points quarter on quarter to 2.07%, supported by improved cost of risk.

The sequential decline in NIM of 23 basis points was primarily on account of higher interest in suspense releases recorded in quarter four, 2023. Cost of funds in the quarter was 89 basis points higher year on year and 4 basis points sequentially at 4.26%.

On slide 8, you will see how non-interest income continues to be an area of growth for the Bank. Net fees and commission income of AED 703 million was up 32% year on year and 22% quarter on quarter with gross card-related fees increasing 29% year on year and gross loan processing fees up 44%. Quarter one was another record quarter for the card business, which issued approximately 70,000 credit cards.

CIBG is also achieving an industry-leading fee/income ratio as the business expands its product suite and leverages a strong track record in syndicated loans and capital markets advisory businesses. Net trading income increased 15% from a year earlier and 32% sequentially to AED 524 million due to higher gains on financial assets at fair value through P&L (FVTPL). Meanwhile, other operating income was lower sequentially due to lower gains from non-trading investments and sale or settlement of loans. Overall, non-interest income increased 21% year on year and 3% quarter on quarter to AED 1.29 billion.

Turning to slide 9, with the Bank continuing to manage costs carefully, operating expenses declined 5% sequentially to AED 1.42 billion. Year-on-year operating expenses were up 15%, reflecting the growth of our business and broad-based investment, including in digital technology, people, sales incentives and compliance. The Bank's cost to income ratio was 30.9%, an improvement of 60 basis points year on year and 110 basis points sequentially.

On slide 10, you will see how the Bank continues to benefit from a strong balance sheet with assets of AED 594 billion, increasing 19% year on year and 5% sequentially. ADCB remains well capitalised and benefits from a strong liquidity position with well-diversified funding. The Bank's liquidity coverage ratio stood at 139.8% at March end with liquidity and loan to deposit ratios of 31.6% and 82.9% respectively.

Please turn to slide 11 for a closer look at our loan portfolio. We continued to generate strong loan growth in the first quarter. Net loans were 21% higher year on year and up 5% sequentially to AED 318 billion. During the quarter, the Bank extended AED 41 billion of new credit across key economic sectors, including GREs, transport, services and financial institutions.

During the period, we received AED 23 billion in repayments. The loan book remains well diversified. GREs now represent 27% of gross loans, compared to 25% at December end. Meanwhile, exposure to the real estate sector has reduced to 16% from 17% at the end of 2023. You will also see that, in Retail Banking, the personal loan portfolio was up 12% year on year with mortgages and auto loans growing by 26% and 28% respectively. The portfolio also remains well diversified geographically with Abu Dhabi representing 52%, Dubai 22% and loans outside the UAE comprising 20%. I will now hand over to Robbert to discuss the investment portfolio and funding mix.

Robbert Muller: Thank you, Deepak, and let's turn to slide 12. The Group's investment securities stood at AED 132 billion at the end of March, and that's up 12% year on year and 3% quarter on quarter. 71% was accounted for at amortised cost and 29% at fair value through other comprehensive income and marked to market on a daily basis. And the growth of the portfolio is in line with the growth of the Bank.

If you move to slide 13, we will see that ADCB maintains a healthy funding mix. Customer deposits were up 6% sequentially and 24% year on year to reach AED 384 billion at March end, accounting for 73% of total liabilities.

Despite the high-rate environment, the Bank attracted AED 12 billion of CASA deposits in the quarter to AED180 billion at March end, representing 47% of total deposits. The 7% sequential growth in CASA deposits outpaced the 4% growth in time deposits. CASA deposits are well balanced, with corporates and SMEs accounting for 54% and Retail Banking and Private Banking representing a combined 46%. In the interbank markets, ADCB was a net lender of AED 17 billion at March end. And this includes our deposit at the Central Bank.

Let's move to slide 14. You will see details of our capital position. Again, the Bank recognised, of course, the importance of maintaining balance sheet strength to enhance long-term resilience. ADCB remains well-capitalised with strengthened Basel III capital adequacy and a CET ratio of 16.26% and 12.96% respectively. And they are up from December. I will now hand over to Paul to discuss asset quality.

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Paul Keating: Thank you, Robbert. Turning to slide 15, the cost of risk in quarter one stood at 67 basis points, well within our guidance of below 80 basis points. The NPL ratio was at its lowest level since 2020, improving to 3.44% from 5.42% a year earlier and 3.73%, as of December year end. The provision coverage ratio improved to 108.5% from 102.5% at December year end and, including collateral, the provision coverage ratio is now at 167%.

Please turn to slide 16 for updates on Al-Hilal bank. Al-Hilalcloud-based super app onboarded 49,000 new banking customers during the quarter, bringing the total to over 305,000 customers since its launch in early 2022. In Q1, an average of 33,000 daily transactions were conducted on the app, with an average engagement time of 21 minutes. As part of a continuous enhancement of the app, Al-Hilal has seamlessly integrated new credit card offerings into the customer's onboarding journey.

Turning to slide 17, ADCB Egypt. ADCB Egypt delivered strong financial performance in the first quarter of the year. Net profit increased 104% year on year to EGP 742 million, based on IFRS, representing a return on equity of 32.8%. Net loans increased 33% year on year and 14% sequentially to EGP 41 million as of last year.

Meanwhile, total deposits increased 22% year on year and 8% sequentially to EGP 93 million. The Bank continues to focus on its digital transformation with a 45% year-on-year increase in digital subscribers. On the sustainability front, ADCB Egypt joined a number of selected partnerships and programmes to support customers' transition towards a green economy.

On slide 19, we have highlighted continued progress being made on our digital strategy. ADCB Group's UAE operations, including Al-Hilal Bank, welcomed approximately 205,000 new retail banking customers with 84% onboarded digitally in quarter one. In March, 'Hayyak', ADCB's onboarding app, registered the highest number of customers in a month. We also saw a 36% year-on-year increase in digital banking subscribers and a 40% increase in digitally active users. 89% of our customers are now registered for digital banking, driving continued growth in activity on our internet and mobile banking platforms. 97% of our retail financial transactions have been conducted digitally in quarter one. I'll now hand back to Deepak for the ESG updates, which is on slide 20.

Deepak Khullar: Thank you, Paul. We remain fully focused on executing our ESG strategy and supporting the UAE's sustainability agenda. Following ADCB's strategic decision to join the Net-Zero Banking Alliance in November 2023, the Bank has developed a robust implementation roadmap to meet its commitment to set targets for carbon-intense sectors by May 2025. Furthermore, we have worked closely with the UAE Banks Federation to develop guidance on accounting for sustainable finance. This now defines our financing portfolio under the ADCB Sustainable Finance Framework as we implement our commitment to extend AED 125 billion of sustainable finance by 2030 with a near-term target of AED 50 billion by 2025.

I would also encourage you to read our 2023 ESG report, which was published earlier today. The report has been prepared in line with global best practice standards and provides details of the Bank's approach and performance across material ESG topics.

Please turn to slide 22 for an overview of the operating environment. We continue to see a robust economic momentum and fundamentals in the UAE, non-oil activities being underpinned by strengthening investment activity, as well as supportive consumer and Government demand. Banking sector liquidity remains comfortable with deposit growth outpacing credit growth.

Global growth has remained resilient in the face of a higher US interest rate backdrop, which is positive for the UAE's external-facing service sectors. Market expectations of the US rate cuts have been pared back since the beginning of the year with uncertainty over the disinflation trend. Overall, the operating environment in the UAE remains positive this year. Lastly, we expect a contained impact of the recent storms on the UAE economy, given the limited business interruptions in key economic sectors.

On slide 23, you will see a summary of our performance and guidance. Please note that we have updated our full-year 2024 NIM guidance to circa 2.7% from circa 2.6%, as well as providing 2024 guidance for a cash dividend payout of 40 to 50% of net profit. We have also issued our medium-term guidance for 2024 to 26 across key metrics, as follows loan growth in high single digits, return on average tangible equity above 14%, cost of risk below 80 basis points, CET1 ratio above 12% and a cash dividend payout ratio, 40 to 50% of net profit.

To wrap up, ADCB experienced strong momentum into Q1 2024, characterised by robust growth in loans and deposits. Our revenue streams remain well diversified, both with our Retail and Corporate and Investment Banking businesses, driving strong year-on-year increases in fee income. Our digital platforms are playing a key role in customer acquisition and are central to the Bank's strategy to increase the market share. Against the backdrop of solid economic fundamentals in the UAE, we remain positive on the Bank's growth prospects and see strong opportunity in sustainable financing as the country pursues its decarbonisation ambitions. I will now open the floor to questions. Thank you.

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Operator: Thank you. If you'd like to ask a question, please press star, followed by the number one on your telephone keypad and ensure your device is unmuted locally when it's your turn to speak. If you change your mind or your question has already been answered, you can withdraw from the queue by pressing star, followed by two. Our first question today comes from Shabbir Malik of EFG Hermes. Please go ahead. Your line is open.

Shabbir Malik: Thank you very much. Just a question about, do you think the cost of funds, they have peaked around 1Q level, or do you see some more room for increase there, considering that rates are, potentially, not going up any further? And, secondly, what's been very impressive has been the CASA growth. Despite high interest rates, we've seen CASA growth, in absolute terms, rising over the last two or three quarters. Do you think this is mainly because of the new customer acquisition? And do you get the sense that there could be some migration into term deposits in the coming quarters?

And you've mentioned that one of the reasons why NIM was a bit lower, compared to the previous quarter, was because there was an interest in suspense in the fourth quarter. Would it be possible that, going forward, we could have a separate disclosure for interest in suspense for each quarter, so we get a sense what the underlying NIM is? I think that would be pretty useful. Thank you very much.

Deepak Khullar: Thank you, Shabbir. I think there were a number of questions in there, so firstly, let me take the first one, CASA growth. Yes, we're very impressed with the CASA growth that's coming through, but we've also seen a number of customers move from CASA to term deposits or be able to fill that gap in, that movement between CASA and term deposits, and get more CASA. A lot of this is also new customer acquisition. Especially in Retail Banking, we're seeing growth coming through as well. And in terms of cost of funds, we expect... trying to improve the cost of funds, going into Q2 and Q3. We have seen longer-tenor deposits come in, in the earlier part of this year and in the latter part of last year, and that is something for us to manage more carefully going forward into the rest of the three quarters of the year.

On your question of published NIM versus underlying NIMs, we'll take that on board, but there are a number of other factors, other than interest in suspense. There's also fair value unwind that goes into that, quarter on quarter, which you cannot predict. As you know, in 2019, when we did the acquisition, we took a fair value adjustment, and some of those adjustments are also coming back through the income statement line, so we're happy to see that come through. But I think, in terms of the NIM guidance at 2.7%, that's something we're working towards to deliver, but I'll hand over to Robbert as well to add some more.

Robbert Muller: No, I just wanted to touch upon, Deepak, what you were saying on cost of funding. I think there are a couple of elements playing into this, with the tenor of the deposit that we're taking. It's the currency composition that we're taking. So, those, I think we can try to optimise going forward as well to bring down the cost of funding. But again, we have also seen a healthy loan growth that also needs to be funded. So, from our part, you've seen our LCR, at the end of year, was relatively high. It's still a little bit elevated, compared to where we started, but it's also, I think, a good approach to take.

Shabbir Malik: Apologies, I didn't get that part. What is relatively elevated?

Robbert Muller: Sorry. What we do see, of course, there's constant change in the portfolio, in terms of our borrowings. That can be in currency composition, but sometimes we get more dollars in, sometimes with more dirhams. The other part playing into it is the tenors. At the end of the year, when people were thinking that rates were going to go down, they gave us a little more one-year bucket than what we've seen currently. So, from our end, we obviously, saw a lot of loan growth coming in as well that we need to fund, so our LCR levels were a little bit elevated, and we're now trying to manage that down. And all in all, I think there is a little bit of room for us to optimise our funding composition, as we gladly see.

Shabbir Malik: Great, thank you very much.

Robbert Muller: Maybe one more thing to add that will perhaps add to our funding costs going forward, and that's yet to be seen. The Central Bank here in the UAE, they have increased the reserve requirements on CASA, and after COVID, they have lower that to 7%. Last year, they have increased it to 11%, and now they will increase it again to 14%. And that will take roughly AED 40 billion out of the funding market here in the UAE. So, we haven't seen a massive impact as of yet, but as the date comes closer and this will be implemented in Q2, we may see some pressure on dirham funding as well. Again, that's another element that we need to take into account, when we look at our funding cost going forward.

Operator: Thank you. Again, as a reminder, if you'd like to ask a question, you can press star, one on your telephone keypad or submit any written question in the chat box provided. Our next question comes from Aybek Islamov of HSBC. Please go ahead. Your line is open.

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Aybek Islamov: Yes, thank you for the conference call and your explanations on margins so far, very helpful. I wanted to clarify about your GRE loan position. Obviously, you just mentioned that your share of GRE volumes gone up to 27% from 25% at the end of last year. Where do you see that GRE lending heading over the next three years, given your views on the rest of the economy performing, private sector and so on and so forth? Also, can you comment on the yields that you charge, or spreads versus three-month benchmark interest rates that you charge on GRE versus private sector corporates? What's the differential there for us to understand, the yield compression we may see coming from this loan book?

And on your international lending, do international loans often include the loans to multinationals, UAE multinationals? Yes, that's it for now.

Deepak Khullar: Yes, thank you, Aybek. Let me take the first question, international loans. If they are lent to MNCs in the UAE, they form part of the domestic portfolio. So, this is exposure outside of the UAE in other parts like in other GCC countries, especially Saudi Arabia, our presence in Egypt and a little bit in Kazakhstan. So, that all forms part of the lending outside of the UAE.

Your first question, in terms of the GRE loan position and where we see it going in the next three years - we seem to think that this will increase as we go forward, in terms of the infrastructure spend that is likely to come from the UAE Government in a number of areas of infrastructure, and you've been reading the same reports as I have. So, we expect that to grow, and we expect to participate in those deals.

In terms of the spread, we don't break that down by each sector or each sector of lending. Yes, the spreads on GREs are, obviously, lower than the corporate sectors because higher credit and lower credit risk, the way we track that is through our risk-adjusted NIM. And if our risk-adjusted NIM is improving, that tells you that we're getting the right risk/ reward for that lending. And there isn't one element that I can tell you that we lent X% over the benchmark rate to GREs and X% for corporates. It depends on tenor, it depends on the project, etc., but perhaps, Paul, if you want to add some more colour to that?

Paul Keating: No, I agree with you, and I think, on a GRE side, the UAE is not going down a privatisation path, so GREs have a fundamental role to play in infrastructure deals across the economy. So, I think this year, 27% and the growth over time will continue.

Aybek Islamov: Okay, thank you.

Deepak Khullar: Anything else, Monica, you'd like to add?

Monica Malik: Maybe just to add, on the share of growing abroad, we continue to see a fiscal surplus overall, and therefore, the Government borrowing requirement is minimal, and that's also adding to greater increase in share. And also, you had mentioned, because a few months spending backdrop and also in our forecast, we see population growth coming into the medium-term, so that will be another area of growth as well, in our view, from a macro side.

Aybek Islamov: Thank you, Monica.

Operator: Thank you. Our next question comes from Jon Peace of UBS. Your line is open.

Jon Peace: Thank you. Afternoon, everybody. So, with your loan growth coming in year over year quite a bit above your full-year guidance, I was just wondering why you didn't revise that loan growth guidance upwards as well. Is it because you maybe expect a slowdown later in the year, or would you say the bias is to the upside? And if the growth is coming from lower-risk GREs, does that mean the RWA density is also quite attractive, in other words, this higher loan growth is not putting that much pressure on your CET1, and maybe that's what's given you confidence in keeping quite a high cash dividend? Thank you.

Deepak Khullar: Yes, thank you, Jon. I think you're absolutely right in terms of the RWA density. That is much lower, and that is also enabling us to grow. So, we've seen that come through in Q1. Yes, we've seen a 5% growth come in Q1, and growth each quarter is, obviously, not similar. We may see either slightly higher or lower growth coming in the following quarters. And we'll see where we end up in Q2, and based on that, if there is, we need to revise the guidance. Of course, then we will take a look at that, but we still remain confident on delivering our 8% to 10% at this point in time.

There could be some repayments also coming through in Q2. I can't, obviously, be aware of the timing of that exactly, but there will be variations between quarters, in terms of growth. And with the Q2 results, we will, if required, update the guidance.

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Jon Peace: Got it. Thank you.

Operator: Thank you. And again, if you'd like to ask a question, please press star, one on your telephone keypad or submit any questions in the chat box provided.

Naresh Bilandani: Lydia, it's Naresh, hi. While we have more questions on the line, may I, please, just add a few? Deepak, just to follow up on the previous question, on the first part of the guidance, where you say 40% to 50% of the net profit will be the dividend payout, it feels slightly shy of the 50% level that you were targeting in the past. And since you are maintaining a mid-single-digit guidance for loan growth over the medium-term, I'm just keen to understand the reason behind this conservatism in the dividend payout ratio. That's first.

Second, it would be very helpful to understand if you would expect any pressure on the net interest margin or the cost of risk from the proposal of deferrals that has been put forward by the UAE Central Bank, with regards to the borrowers that have been affected by floods. Any thoughts that you can share on that, would be super-helpful.

And third is, just keen to understand, over the past couple of quarters, you've had very strong new customer acquisitions. Could you share where, exactly, the cross-sell ratio is? And just keen to understand the lifecycle journey of a new customer. Typically, the first product would tend to be a bank account. How quickly are you able to see them convert into a loan or a credit card or further products? So, just to understand how the cross-sell ratio will develop and so that we can get a view on your fee incomes. So, if you can throw some light on these three questions, that would be super-helpful, thanks.

Deepak Khullar: Sure. Let me take the first question around loan growth dividend and the conservatism that you alluded to. We've put out a range of 40% to 50%. Yes, in the past, it was at 50%. We've seen some very strong growth coming in 2023. We're off to a really good start in 2024 as well. The RWA density is also quite nice in the first quarter, and we expect further growth to come in the balance of the year. And this will depend. That's why the range so if you see a much stronger growth coming through than anticipated, we could be at the lower end of that, and depending on the density as well.

So, in that 40% to 50% range, I think, it'll, again, depend on the loan growth and the RWA density that comes through. And closer to the year end, we'll make the decision or make the recommendation to the shareholders for that dividend payout.

Paul Keating: I think we're also conscious, as to the pillar 2 risks as well, that we need to hold buffers for, so that factors into that year-end consideration as we go forward as well.

Deepak Khullar: In terms of the third question, I'll let Paul answer the cost of risk reason, but let me take the last one first, in terms of cross-sell ratios, etc. Now, this differs by different segments, so our excellency segment, for example, which is the highest and slightly below private, is where we've got the highest cross-sell ratio, around 3.5 to 4 products. And so, that's very strong, and then the lower segments have a slightly lower cross-sell ratio. But, yes, typically starts off with a bank account, and then you've got credit cards and mortgages and auto loans, etc., being sold.

So, fee income, as you can see, has been very strong. Both gross card income is up, based on spend, that's coming through, and loan processing fees is also quite strong in the quarter, up 44% on a gross basis. So, that is something we are constantly focused on, in terms of increasing cross-sell ratio. I'll hand over to Paul to address the recent flood events and the cost of risk impact.

Paul Keating: Thanks, Deepak. So, on the cost of risk, yes, our medium-term guidance and also FY24 guidance stays at less than the 80 basis points. So, at this stage, no material impact that we see from the flood and the weather event. Certainly, the retail portfolio, going into that event, we're well placed from days past due perspective. I also think it's different. Some people are trying to compare it to COVID. I think it is different from that context, in terms of it's more isolated pockets that have been affected, as opposed to across the country.

And different from COVID, people are still getting paid their monthly salaries, etc., where during COVID, people faced either no salary or a reduction of salary as corporates manoeuvred their cashflows and coped. So, with that backdrop, yes, there's nothing material at this stage, and we haven't seen a material rapid response, in terms of customers reaching out to the Bank at this stage.

Naresh Bilandani: Got it. All right, thank you. Deepak, would you be able to share a Group-widecross-sell, by any chance? Where does it stand right now?

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Deepak Khullar: No, I can't share that right now. It depends on each sector, and it's very difficult to just give a weighted average of that by segment. But we'll take that into consideration, and if we can put that out, then we'll consider that for future presentations.

Paul Keating: It's going to be high-margin.

Deepak Khullar: Yes, absolutely.

Naresh Bilandani: Sounds good. All right, thank you. Lydia, back to you.

Operator: Thank you. We've had a written question, which reads, unfortunately, I did not fully get the part regarding funding cost pressure on long-term AED funding. Could you, please, clarify the change that creates this expectation in Q2?

Robbert Muller: Yes, let me try again and be, perhaps, a little bit more clear. So, what we saw, of course, at the end of last year, that our loan portfolio was growing, and of course, we need to fund that. So, we took more funding on board, and what also happened at the same time was that clients were expecting that rates were to go down, given the path that was then projected by the Fed for these type of markets. So, there were also a number of clients who gave us more long-dated funding than they previously did. So, you just saw the average maturity profile grow on a liability case, and that came with an extra cost. But we're also seeing sometimes that we see shifts in currency composition.

And again, there is a relative funding cost differential between dirhams and dollars. At this point in time, dollars are more expensive than dirhams, so we took, also, a bigger proportion of dollars in our liability profile. Again, these are all things that we need to carry, going forward to make sure that we have an optimised funding profile against the asset growth that we are seeing. Will this be a pinpoint exercise? No, but I do think that there is an opportunity for us, wouldn't you agree, to optimise the cost of funds going forward. Having said that, I've also point out the changes happening in the dirham market, whereby Central Bank is putting extra reserve requirements for banks, which will suck out liquidity from the system.

The exact impact and cost of funds is yet to be determined because that will not play out into the second quarter, but that may have an upwards effect on our cost of funding as well. So, anyway, we need to find a very balanced approach to watch our cost of funding and, of course, try to keep it as minimal as possible, but of course, maintain a prudent approach that you still need to fund before you land. And that's something we have been doing before and will continue to do so, going forward.

Paul Keating: And the reserve requirements that Robbert refers to, that 14%, is reverting to the pre-COVID level. It's not a further increase by the Central Bank ahead, as Deepak mentioned. It was part of the programme during COVID to have separate actions and different mechanisms, and that's been stepped back to the 14%.

Robbert Muller: And again, maybe also to clarify, the extra reserve requirements, we don't get any return unless required. It's not usually required, so we usually get zero. So, it's also impacting revenues. It's a written question, right?

Operator: Yes, that was a written question.

Robbert Muller: Yes, so I don't know whether the answer that we've given now is sufficient. Otherwise, the person can write back, but if it's not the case, then we can take it offline as well.

Operator: Thank you. Again, just as a final reminder, please, submit any written questions online, or press star, one on your telephone keypad. We have no further questions, so I'll turn the call back over to you, Deepak Khullar, for any closing remarks.

Deepak Khullar: Thank you, and I'd just like to say that we've had a good start to the year. We're positive on the loan growth that we had guided the market to, 8% to 10%. And we've seen that growth come through. We've revised our NIM guidance upwards from 2.6% to 2.7%, and we've also given guidance now on dividends. So, the Bank's off to a good start in the first quarter of the year, and that's all I'd like to say at this stage. So, thank you very much for your time, and if there are any further questions or queries, please, write in to Harsh at our IR desk, and we'll be very happy to get back to you with the answers. Thank you very much.

Operator: This concludes today's call. Thank you for joining. You may now disconnect your line.

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Further information on ADCB can be found at adcb.com/ir or by contacting:

Investor Relations	Corporate Communications	Financial and Strategic Engagement
Harsh Vardhan	Majdi Abd El Muhdi	Denise Caouki
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This document has been prepared by Abu Dhabi Commercial Bank PJSC ("ADCB") for information purposes only. The information, statements and opinions contained in this document do not constitute a public offer under any applicable legislation

or an offer to sell or solicitation of an offer to buy any securities or financial instruments or any advice or recommendation with respect to such securities or other financial instruments. This document is not intended for distribution in any jurisdiction in which such distribution would be contrary to local law or reputation.

The material contained in this press release is intended to be general background information on ADCB and its activities and does not purport to be complete. It may include information derived from publicly available sources that have not been independently verified. No representation or warranty is made as to the accuracy, completeness or reliability of the information. It is not intended that this document be relied upon as advice to investors or potential investors, who should consider seeking independent professional advice depending on their specific investment objectives, financial situation or particular needs.

This document may contain certain forward-looking statements with respect to certain of ADCB's plans and its current goals and expectations relating to future financial conditions, performance and results. These statements relate to ADCB's current view with respect to future events and are subject to change, certain risks, uncertainties and assumptions which are, in many instances, beyond ADCB's control and have been made based upon management's expectations and beliefs concerning future developments and their potential effect upon ADCB.

By their nature, these forward-looking statements involve risk and uncertainty because they relate to future events and circumstances which are beyond ADCB's control, including, among others, the UAE domestic and global economic and business conditions, market related risks such as fluctuations in interest rates and exchange rates, the policies and actions

of regulatory and Governmental authorities, the impact of competition, the timing impact and other uncertainties of future acquisition or combinations within relevant industries.

As a result, ADCB's actual future condition, performance and results may differ materially from the plans, goals and expectations set out in ADCB's forward-looking statements and persons reading this document should not place reliance on forward-looking statements. Such forward-looking statements are made only as at the date on which such statements are made and ADCB does not undertake to update forward- looking statements contained in this document or any other forward-looking statement it may make.

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