MANAMA: Arab Banking Corporation (ABC) has announced its consolidated group results for 2008.
The results show that ABC has been impacted by the waves of adversity that began in April 2007 with the subprime mortgage crisis in the United States, which led to a global financial crisis during the first half of 2008 and affected the real economies, first of developed nations but quickly all economies of the world, by the end of 2008. Recently, these profound changes have had severe knock-on effects in the GCC (Gulf Cooperation Council) nations, depressing energy prices, stock and property markets and consequently retail and government spending.
Total operating income for Q4 amounted to $140 million, slightly below the total of $148 million generated over Q3. Earnings from equity funds and interest margin from lending activities were slightly reduced because of the low interest rate environment and a pullback in loan volumes. At the same time operating expenses declined to $84 million, six percent less than in Q3. Operating profit before impairment provisions totaled $53 million, $6 million less than in the third quarter. Net loss for Q4 after recognition of impairment provisions amounted to $28 million.
The group’s net profit for 2008 before impairment provisions totaled $175 million, compared with $261 million recorded for 2007, excluding the exceptional gain of $94 million from the Banco ABC Brasil IPO (initial public offering) in 2007. In the face of severe adversities, this level of 2008 profit before impairment provisions reflects ABC’s solid underlying performance from core wholesale business activities as well as ABC’s growing retail banking activities across North Africa and the Levant. Impairment provisions for the year totaled $1.055 billion mainly from the first half of 2008 when the group made a clean sweep of its exposures to structured investment vehicles (SIVs) and collateralized debt obligations (CDOs), setting aside $733 million.
Also during the first half of 2008, ABC exited all its investments in hedge funds. Additional impairment provisions were required in the second half of 2008 to respond to further deteriorations in GCC and international financial markets. The group’s overall result for 2008 was a net loss of $880 million.
Shareholders’ equity at Dec. 31, 2008 stood at $1.793 billion after absorbing the loss for the year, compared with the total of $1.867 billion in December 2007, and following the increase in ABC’s paid up capital in June 2008 through a rights issue from $1 billion to $2 billion.
ABC’s balance sheet contracted during 2008 to total $28.5 billion at the year end, down $4.3 billion over the year, mainly because of $2.9 billion decline in securities holdings due to exit, run-offs and the adjustments required in provisioning.