The Financial Statements of National Bank of Abu Dhabi

Introduction

The National Bank of Abu Dhabi (NBAD) traces its origin to 1968 when it was created to act as a banker for the Emirate of Dubai (NBAD, 2012). The bank has since grown and was listed on the Abu Dhabi Securities Exchange (ADX). This took place immediately the exchange came into existence in 2000.Like most strategic businesses in the gulf, the government has the majority shareholding in the bank. That shareholding stands at 70% for the government with only the remaining 20% ownership is held by the private sector. What follows is an evaluation of the financial statements of NBAD for the years 2011 and 2012.

Services (Q1)

Like most banks in today’s modern economy, NBAD provide both commercial and investment banking services (NBAD, 2012). It does this through a strong network of subsidiaries and divisions. There are a total of seven divisions each offering an array of services under NBAD’s business model.

Domestic banking

It operates exclusively within the United Arab Emirates (UAE). Some of the services available under the division include retail banking, business banking and even Islamic banking (NBAD, 2012). Automated Teller Machine (ATM) services are auxiliary to these services under the domestic front. The domestic banking division also offers credit origination services.

Through partnerships and alliances, the division has been able to introduce new services like banc assurance (NBAD, 2012). There is also a credit card business under the division. It also offers an elite banking service where high net worth customers are given personalized services.

International banking

This is a division only to the extent that the company has operations in the respective foreign countries (NBAD, 2012). The operations carry out the same banking business as the domestic division. Trade finance is also common in this operation.

Financial markets

Through this division, the bank offers foreign exchange (FX) brokerage services. It also offers a platform for commodity trading (NBAD, 2012). They also deal in securities trading just as they engage in the syndication of bonds.

Corporate and investment banking

Mainly involved in offering structured finances services. This may entail underwriting of securities. Below is a list of other services offered in this division:

·         Cash management

·         Letters of credit

·         Letters of guarantee

·         Documentary credits and collections

·         Real estate valuations, leasing and property management.

·         Advising on Mergers and Acquisitions.

Global Wealth

The services offered under this division are asset management, brokerage and custody as well as private banking.

Overview of the 2012 Financial Statements (Q2)

The Balance sheet for NBAD for as at 31 December 2012 looked very healthy (NBAD, 2012). As compared to the previous year, the 2012 balance sheet showed improvements in many important respects.

The Balance Sheet

The cash assets were mainly reserves at the central bank and those held at other depository institutions (NBAD, 2012). The cash held at both the central bank and other financial institutions was AED 54,943,221 and AED 14,615,968 billion respectively. The cash at the central bank was more than twice the amount held in the previous year.  The bank also held slightly over AED 2 billion worth of property and equipment. This did not represent any marked difference from the previous year. There was over AED 160 billion in loans and advances, a marginal improvement from the previous year. There was AED 30 billion in total assets, an improvement considering that this was slightly over AED 250 billion in the preceding year.

A look at the liabilities of NBAD shows that customer deposits constitute the biggest portion. At 190 billion, this was more than all the remaining liabilities combined (NBAD, 2012). It also indicates a considerable increase from the previous year which stood at AED150 billion. Overall, the liabilities were approximately 90% of the total value of assets. This is a positive sign as the company can discharge its obligations from the sale of its assets. It seems there was no change in total liabilities as a percentage of total assets from 2011. Even more important is short term liabilities as a percentage of assets without the incorporation of property and equipment. This can accurately give an indication as to the ability of the bank to meet its short term obligations as they become due. Besides, plant and equipment are normally recorded on the basis of historical cost. It is, therefore, not possible to know their market value. The percentage does not change much even with the exclusion of property and equipment in the assets.

On the equity side, the bank had a total of AED 31 billion compared to a figure of AED 26 billion in 2011(NBAD, 2012). The total equity amounted as a percentage of total assets amounted approximately to 10.3%. Reserves constituted the biggest portion of all equity figures. Except for a single item of equity, subordinated convertible notes, all other figures were higher than what they were in the previous year. Per value of the share capital held amounted to AED 3.8 billion.

Income Statement

The general view is that the bank was able to register positive results in both 2011 and 2012. Net profit in 2012 was more by AED 0.6 billion from the 2011 figure (NBAD, 2012). This can be attributed to better cost management given that there were no major differences in revenues between the two years.

Performance Evaluation (Q3)

Return on Equity Capital (ROE)

The Relevant figures are:

Net Income =AED 4,332,228,000 for 2012 and AED 3,707,547,000 for 2011 respectively

Total Equity Capital=AED 31,133,091,000 for 2012 and AED 26,389,485,000 for 2011

Thus, ROE for 2012=AED 4,332,228,00031,133,091,000

=0.1391 or 13.91%

ROE for 2011=AED 3,707,547,00026,389,485,000

=0.1405 or 14.05%

It is apparent from these figures that equity investors at NDAB expect to get modest returns. It is also relevant to not that there was a reduction on ROE from the previous year from 14.05% to 13.91%.

Return on Assets (ROA)

Total Assets were AED 300,599,169,000 for 2012 and AED 255,667,505,000 for 2011 respectively.

Thus,

 ROA 2012=AED 4,332,228,000AED 300,599,169,000

=0.01444 or 1.441%

ROA for 2011=AED 3,707,547,000AED 255,667,505,000

=0.0145 or 1.45%

The above figures indicate that NDAB is still not using most of its assets optimally. A ROA of slightly above 1% portends that there is still so much room for improvement. Perhaps the company would want to do away with non-performing assets.

Net Interest Margin

This ratio shows the extent to which a bank’s invested assets are performing. A positive figure indicates that the investment is earning more than what it spends. Similarly, a negative figure indicates that the investment is not doing well. This may make a bank to consider reinvesting such funds to other more profitable activities.

Interest Income =AED 7,979,592,000 for 2012 and AED 7,651,786,000 for 2011.

Interest Expense=AED 2,156,628,000 for 2012 and AED 2,156,538,000 for 2011.

Thus,

Net Interest Margin for 2012 = (AED 7,979,592,000-AED2, 156,628,000)AED 300,599,169,000 2).

=AED 5,822,964,000AED 150,299,584,500

=0.03874 or 3.874%.

Net Interest Margin for 2011=(AED 7,651,786,000-2,156,538,000)(255,667,505,0002)

=AED 5,495,248,000127,833,752,500

=0.043 or 4.3 %.

It is apparent from both figures that the bank performed positively in both years although there was a reduction of 1% in 2012.

Net Noninterest Margin

It measures the performance of the bank on those revenues not related to interest. Just like the net interest margin, a positive figure shows that the business is performing well.

Noninterest Revenues=AED 691,193,000 for 2012 and AED 229,076,000 for 2011

Provision for loan and leases losses=none

Noninterest Expenses= AED 4,697,649,000(W1) for 2012 and AED 4,418,441,000(W1) for 2011

The margins for both years show that NDAB makes most of its profits from interest revenues. This is quite normal for a bank.

Thus,

Net Noninterest Margin for 2012= (AED 691,193,000- AED 4,697,649,000)(300,599,169,0002)

=-AED 4,006,456,000÷AED 150,299,584,500

=-0.0267 or -2.67%.

Net Noninterest Margin for 2011= (AED 229,076,000- AED 4,418,441,000) ÷ (255,667,505÷2)

= -AED189, 365,000÷AED 127,833,752,500

=-0.00148 or -0.148 %

Workings 1

For 2012=AED 8,670,785,000-AED 7,979,592,000

=AED 691,193,000

For 2011=AED 7,880,862,000-AED 7,651,786,000

=AED 229,076,000

Noninterest Expenses for 2012=AED 6,854,277,000-AED 2,156,628,000

=AED 4,697,649,000

Noninterest Expense for 2011=AED 6,574,979,000-AED 2,156,538,000

=AED 4,418,441,000

Net Operating Margin

This ratio shows how well the bank is able to control its costs. The higher the margin, the better for the bank.

Pretax Net Operating Income =AED 5,800,732,000 for 2012 and AED 5,317,138,000 for 2011

Thus,

Net Operating Margin for 2012=AED 5,800,732,000÷AED 300,599,169,000

=0.0193 or 1.93%

Net Operating Margin for 2011=AED 5,317,138,000÷AED 255,667,505,000

=0.021 or 2.1%

Again here the conclusion is that the bank was able to manage its costs fairly well given the positive operating margins.

Earnings per Share

It shows the portion of profits that are attributable to common shareholders. These figures are already provided in the income statement of NDAB.  In 2012, the basic Earnings Per Share was AED 1.06 with the figure being AED 1.04 after dilution. Similarly, earnings per share in 2011 were AED 0.90 and 0.88 before and after dilution respectively. This was a good improvement in maximizing shareholder value.

Reference

National Bank of Abu Dhabi (NBAD) Annual Reports (2012). Retrieved 14 April 2012, from http://www.nbad.com/en/InvestorsRelation/Pages/AnnualReports.aspx  

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