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 4,332,228,000
31,133,091,000
31,133,091,000
=0.1391 or 13.91%
ROE for 2011=AED 3,707,547,00026,389,485,000
26,389,485,000
=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
AED 300,599,169,000
=0.01444 or 1.441%
ROA for 2011=AED 3,707,547,000AED 255,667,505,000
AED 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 300,599,169,000 2).
=AED 5,822,964,000AED 150,299,584,500
AED 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)
(255,667,505,0002)
=AED 5,495,248,000
127,833,752,500
127,833,752,500
=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)
(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