Mashreq posts a three per cent y-o-y growth in net profit in the first half of 2017
Mashreq, one of the leading financial institutions in the UAE, has reported its financial results for the first half ending 30th June 2017.
Key highlights [1H 2017 vs 1H 2016]:
- Steady growth in Net Profit
- Net profit for the first half stood at AED 1.1 billion – a three per cent increase YoY
- Impairment Allowance down by 22.3 per cent YoY
- Consistently high proportion of non-interest income
- Mashreq’s best-in-class non-interest income to operating income ratio remained high at 41.2 per cent
- Investment income up by 52.4 per cent year-on-year
- Solid balance sheet
- Total Assets increased by 2.4 per cent in the year to AED 125.8 billion whereas Loans and Advances increased by 2.4 per cent to AED 62.4 billion as compared to December 2016
- Customer Deposits increased by 1.1 per cent year to date to reach AED 77.9 billion
- Loan-to-Deposit ratio remained robust at 80.2 per cent at the end of June 2017
- Healthy liquidity and capital position
- Liquid Assets to Total Assets stood at 29.7 per cent with Cash and Due from Banks at AED 37.3 billion
- Capital adequacy ratio and Tier 1 capital ratio continue to be significantly higher than the regulatory limit and stood at 17.2 per cent and 16.3 per cent respectively
- Sustained asset quality
- Non-Performing Loans to Gross Loans ratio remained stable at 3.3 per cent at the end of June 2017
- Total Provisions for Loans and advances reached AED 3.7 billion, constituting 150.1 per cent coverage for Non-Performing Loans
Mashreq's CEO, HE AbdulAziz Al Ghurair, said: “Mashreq’s continued focus on business performance while remaining committed to our customers’ needs is evident in the financial results for the first half of 2017. Our perennial drive to deliver innovative solutions which exceed customer expectations is the reason we are able to achieve sustained performance, despite market slowdown and regional headwinds. I am pleased to report that we achieved a three per cent year-on-year increase in net profit; it stood at AED 1.1 billion for the first half of 2017."
“Our teams have worked well to build a steady pipeline of non-interest income, which represents a healthy 41 per cent of Operating Income. Loans-to-deposits remains steady at 80 per cent, supported by our highly liquid balance sheet and above-average Tier 1 capital. Growth in Assets and Liabilities has been modest in line with market conditions, and costs have been managed well so that we remain nimble and flexible.”
“Though each business faced its own environmental and market challenges, I am delighted that we achieved several milestone wins across Global Transaction Services, Corporate Finance, Real Estate, NBFI, Retail Banking and International Banking. I am particularly excited about the upcoming launch of Mashreq Neo, a new innovative branchless digital bank, which we hope will transform the financial services landscape in the UAE.”
“While staying fully abreast of the external challenges, we remain moderately optimistic for the second half of 2017. We will continue to invest strongly in digital transformation and digital capabilities, to take advantage of global trends and customer preference shifts”.
Al Ghurair concluded, “In May 2017, Mashreq celebrated its 50th year of pioneering financial services in the UAE and the region. We launched our new vision for the future at a prestigious event in the presence of His Highness Sheikh Mohammed bin Rashid Al Maktoum, Vice President and Prime Minister of the UAE and Ruler of Dubai, and our clients, business partners and industry leaders. In addition to our business achievements, I take special pride that we are a recipient of the Gallup Great Workplace Award for the fourth year in a row, and we are part of an elite set of 37 global companies to win the award this year.”
- Total operating income for 1H 2017 was AED 3 billion, a year-on-year decrease of 5.5 per cent compared to 1H 2016 operating income of AED 3.2 billion due to a fall in non-interest income.
- Net Interest Income and income from Islamic Financing remained stable at AED 1.8 billion compared to 1H 2016. On a quarterly basis, it increased by 6.7 per cent to AED 0.9 billion in 2Q 2017 and led to a 19 bps increase in net interest margin from 3.34 per cent in 1Q 2017 to 3.53 per cent in 2Q 2017.
- Though Investment income increased by 52.4 per cent, total non-interest income fell by 9.9 per cent as Net fee and commission decreased by 14.7 per cent year-on-year to reach AED 763 million. Net fee and commission income represented 61.9 per cent of total non-interest income in 1H 2017 as compared to 65.4 per cent in 1H 2016.
- Operating expenses for the first half decreased by 2.4 per cent year-on-year to reach AED 1.2 billion; Efficiency Ratio at 39.3 per cent in 1H 2017 increased slightly with respect to the previous year (38.0 per cent as of 1H 2016).
- Net profit for the quarter increased by 2.1 per cent to AED 557 million from AED 546 million in 1Q 2017 (AED 1.10 billion in 1H 2017 vs AED 1.07 billion in 1H 2016).
Assets and asset quality
- Mashreq’s Total Assets increased by 2.4 per cent to reach AED 125.8 billion in 1H 2017, compared to AED 122.8 billion at the end of 2016. Loans and Advances increased by 2.4 per cent YTD to end at AED 62.4 billion driven by 8.8 per cent growth in Islamic finance. Liquidity continues to remain healthy with a high liquid asset to total assets ratio of 29.7 per cent.
- Though conventional deposits increased by 1.7 per cent, total Customer Deposits increased only by 1.1 per cent YTD to AED 77.9 billion due to a decline in Islamic deposits. Loan-to-Deposit ratio stood at 80.2 per cent in June 2017 vs 79.2 per cent in December 2016.
- Non-Performing Loans stood at AED 2.6 billion in June 2017 leading to a Non-Performing Loans to Gross Loans ratio of 3.3 per cent at the end of June 2017 (3.1 per cent in December 2016). Net Allowances for impairment for 1H 2017 were AED 652 million compared to AED 838 million in 1H 2016. Total Provisions for Loans and advances reached AED 3.7 billion, constituting 150.1 per cent coverage for Non-Performing Loans as of June 2017.
Capital and liquidity
- Mashreq’s Capital adequacy ratio stood at 17.2 per cent (regulatory minimum of 12 per cent) as of 30 June 2017, compared to 16.9 per cent as of 31 December 2016. Tier 1 capital ratio at 16.3 per cent continues to be significantly higher than the 8 per cent regulatory minimum stipulated by the UAE Central Bank (15.9 per cent as at 31 December 2016)
Business unit updates
Global Transaction Services
In the second quarter, Mashreq’s Global Transaction Services (GTS) team won the prestigious “The Innovators 2017 - Transaction Services” award by Global Finance for its transformative product - Cardless Cash Services for Corporate Customers. Mashreq is the only bank in the MENA region to be named in the Innovators list. Continuing with its quest for innovation, Mashreq became the first bank in the region to sign-up for the SWIFT Global Payment Innovation programme, which aims to dramatically improve the customer experience in cross-border payments by increasing the speed, transparency and end-to-end tracking of transactions. These all point to the continuous effort by Mashreq in building a digital ecosystem to maintain its leadership position in offering innovative transaction banking solutions to meet and exceed its customers’ expectations.
Corporate Finance remained completely engaged during the second quarter having fully underwritten and prefunded the USD 0.5 billion acquisition finance facility for acquiring partial ownership in the UAE franchisee of a large European auto dealer. Corporate Finance was also involved in the execution of an AED 1,513 million Club Term Loan for a leading district cooling company in the region (closed in June 2017) – this is the 3rd deal successfully undertaken by Mashreq in recent years (after 2014 and 2015 deals) for this important relationship. The transaction was a hybrid of corporate lending and project specific finance, based on a tailored Islamic structure. In addition, an Islamic structured AED 370 million financing facility for Saudi German Hospital Group was successfully concluded.
The team continued to build on its transaction pipeline including pitching aggressively for a strategic mandate for a large local family business conglomerate having regional interests amidst a challenging regional landscape and economic environment.
The division continued to maintain its competitive edge in the UAE market and has further demonstrated and leveraged upon its decade old relationships in Mashreq’s presence countries by successfully providing finance to contractors for projects across Bahrain, Qatar, Kuwait, Egypt and Oman thereby capitalising on the bank’s strong regional presence.
Mashreq continues to demonstrate its expertise in Contracting Finance through successful execution of several high-value projects within the Oil & Gas, Petrochemical, Civil, Infrastructure and Power & Water Industries.
During 1H 2017, Mashreq supported prominent local and international contractors executing several strategic projects across the region. New projects worth AED 13.1 billion were supported during 1H 2017 and projects financed in 1H 2017 will enhance the regions strategic reserves support the infrastructure development of the region and diversify the economy along with enriching the cultural outlook.
Real Estate Finance & Advisory
The Real Estate Finance & Advisory successfully executed over AED 1.5 billion worth of transactions during the first half of 2017 and have a strong pipeline of transactions totalling over AED 5 billion for the remainder of the year. These include bilateral, club and syndicated facilities for some of the most prestigious and prominent names within the UAE and GCC real estate industry. The team has also now started its pitch to select investors relating to its DIFC-based real estate Qualified Investor Fund (“QIF”) which was launched in partnership with an experienced real estate private equity firm in Abu Dhabi.
The NBFI team made a breakthrough in Kuwait by initiating a new to bank relationship with the market leader in the Finance segment – in addition to building an active pipeline in Kuwait for 2H 2017. The team looked at two regional acquisition finance transactions and has built up a pipeline of new to bank transactions for closure in 3Q. Under product initiatives the team has commenced conversion of a working capital facility, for a service organisation, under a trade structure to achieve operational efficiencies for the Relationship team.
In the second quarter, the business units within Retail witnessed significant achievements. Our Personal Banking segment saw good growth in Deposits of 6 per cent year-on-year. Our increased focus on working professionals and mass affluent segments has borne results, with premium cards sourcing rising from 25 per cent to 31 per cent, and 20 per cent year-on-year growth in salary transfer accounts.
We invested to grow our ability to meet our customers’ Wealth Management needs by hiring 24 new relationship managers across Private Bank and Mashreq Gold, and simplifying operational processes. Assets in this segment grew by 10 per cent, Deposits by two per cent, with a resultant revenue increase of four per cent year-on-year.
Business Banking continued to show solid growth on the back of our increased focus on serving the transactional needs of our customers. This segment witnessed 18 per cent growth in deposits, 14 per cent growth in fees income, and 24 per cent revenue in non-lending income.
Mashreq Branches has seen an increase in loans volumes by 10 per cent from last year, and concurrently our migration of teller transactions to digital channels reached an unprecedented 91 per cent of all such transactions.
In our continuous effort to support Emirati talent, Mashreq participated in several Careers Fairs in UAE, including the Fujairah International Career and Education Fair. We participated in 29 Open Days across many universities in the Northern Emirates.
Mashreq also inaugurated a brand new call centre in Ras Al Khaimah, the first of its kind in the emirates. This call centre will be manned by 70 staff, majority of whom are fresh Emirati graduates with Higher Diploma/Bachelor degrees from local institutions.
Continuing its long-held belief in the importance of innovation, Mashreq introduced Quick Remit services to Pakistan in 2Q. Quick Remit services enable our customers to transfer Pakistani rupees free of charge either via MashreqOnline or Snapp and enjoy instant credit to any bank account in Pakistan.
The bank received several awards throughout 2Q. It is the first bank in the region to be recognised as the ‘Best Contact Centre’ in Europe, Middle East and Africa by the world's largest Contact centre Association in London, and in addition to being awarded ‘Best Contact Centre Middle East’ by Insights Middle East in Dubai. EFMA has also awarded the Distribution and Marketing Innovation Award to Mashreq for our extensive use of Facebook Live sessions to engage customers, and our Innovation of using ChatBot technology for customer service.
Looking ahead, Mashreq’s strategy is to continue to digitise the bank, making customer experience seamless, personalised and omni-channel, and to lead into the future, where banking goes entirely branchless. In this regard, HE Abdul Aziz Al Ghurair unveiled a new milestone commemorating the 50th anniversary of the bank – we will be launching Mashreq Neo in 3Q 2017, a full service digital bank aimed at the growing genre of digitally savvy customers and delivering a branchless banking experience.
An improving macro outlook for Asia, Europe and African trade has contributed to IBG’s robust performance in the first half of the financial year.
At Mashreq, digitisation is considered key to providing our clients with the very best customer experience possible. Recently we launched the Mashreq Corporate Mobile Banking solution in Bahrain and Qatar and in the coming months will also be extending this service to our corporate clients across Egypt.
Treasury and capital market:
Though corporate FX flows have been weighed down, the retail space continues to perform in line with expectations. Trading revenue has picked up pace amidst increased market volatility.
Rates & Fixed Income
Corporate interest rate hedging business picked up as the US Federal Reserve continued to hike rates. The team executed hedging transactions for various corporate banking clients. Regional credit markets witnessed another strong quarter in terms of primary bond and Sukuk issuance, based on which bond trading volumes picked up pace. The interest in equity and interest rate linked structured investment products also picked up and the team managed to expand the reverse repo offering by adding new relationships.
Volumes in the local market were flat YoY in 1H 2017. However, with improved product design and by offering diversification options to our clientele the team was able to grow the bottom line on increased customer flows and higher market share. Saudi Arabia was added to MSCI’s watch list for a potential upgrade to EM status in 2018 in June, which could trigger the flow of foreign funds in the region provided there are further positive developments.
Business has been stable, driven in particular by fixed income (comprising the majority of assets under management). Both the Makaseb Income Fund and Mashreq Al Islami Income Fund have outperformed their respective benchmarks and rank as best and second best among their peers. With new products and mandates in the pipeline 2H 2017 should continue to contribute to the growth of the business.
Mashreq continues to be supported by its comprehensive capital markets products suite across asset classes, an online trading platform and a 24 hour dealing room.