MANAMA: Bank ABC has reported that an increase in loan loss provisions, largely related to unforeseeable major fraud cases and Covid-19 impact, created a net loss of $89 million for 2020.
Strong underlying operating performance despite market factors resulted in underlying net operating profit of $282m before provisions.
The group had a strong start to 2020 supported by a robust balance sheet, good client transaction pipeline and a clear plan for growth driven by our digital agenda and wholesale bank transformation.
However, as the year progressed, financial results were heavily impacted by the unique combination of Covid-19, collapse in oil prices and consequent economic and market pressures, together with the emergence of some major regional fraud cases, which significantly elevated loan loss provisions to abnormally high levels.
Bank ABC responded early to the pandemic, with measures to protect its staff, strengthen operational resilience, contain costs during Q1 2020 itself and at the same time continued to invest in strategic priorities.
The bank took its digital transformation, during the year, to new levels, completely changing the banking experience of its customers in Bahrain, with its world-class mobile-only digital bank, ila, significantly exceeding expected growth targets.
Identifying an opportunity for inorganic growth in Egypt, Bank ABC entered into an agreement to acquire 99.4pc stake in Blom Bank Egypt, providing an excellent franchise addition and platform for growth.
Overall in 2020, the underlying business and client revenues held up well in all markets of operation, achieving 91pc of previous year levels, when normalised for hedging and adjusted for uncontrollable market factors, primarily depreciation of the Brazilian Real ~23pc creating a significant translation impact on revenues from Banco ABC Brasil (BAB).
In response, extensive measures were taken on operating expenses to mitigate the reduction in revenues, so that on an underlying net operating profit basis, the group achieved a net result of $282m compared to $351m in 2019.
However, a significant ECL charge of $329m (FY 2019 $82m), of which $183m was the result of unforeseeable major client frauds in the region.
The remainder of $146m was elevated due to the pandemic and the forward-looking nature of IFRS9, representing a significant increase on previous year’s levels, similar to the experience of other market players.
In summary, the ECL charge has led to the group reporting a net loss of $89m, and without the one-off fraud element the group would have been in a net profit position of $94m.
Consolidated net loss for Q4-2020 was $33m as against a net profit of $33m reported for the same period of 2019.
Earnings per share for the period were negative, compared with $0.01 in the same period of the previous year.
Total comprehensive income was $91m compared with $85m reported for the same quarter of 2019.
On a headline basis, total operating income was $218m, 6pc lower compared with $232m earlier.
On an underlying basis, total operating income was $203m for the period, compared with $223m for Q4-2019.
Net interest income was $134m, 6pc lower against $143m reported for Q4-2019 after absorbing the impact of declining interest rates and FX depreciation.
Operating expenses were $126m, 10pc lower than $140m for Q4-2019, benefiting from the cost savings initiatives during the year, while reprioritising the continuing investments into the group’s digital transformation and strategic initiatives.
On an underlying basis, the group achieved a net operating profit of $70m compared with $83m in Q4 2019.
Impairment charges (ECL) for the period were $95m compared with $36m reported for Q4-2019
Bank ABC Group chairman Saddek El Kaber said, “2020 has been a year like no other. Our performance has been overshadowed by the Covid-19 pandemic with its consequent lockdowns and market uncertainties including low interest rates and low oil prices, compounded by unprecedented fraud cases in the region. Against this turbulent backdrop, Bank ABC was able to demonstrate its resilience and agility in adapting to the ‘new normal’. We had ended the year healthy with excellent liquidity and stability in pre-provision profitability, although disrupted by an exceptional fraud impact.
“In contrast, 2020 has allowed us to expand our business by a significant acquisition and a remarkable head start of our digital consumer bank in Bahrain. As we look towards the future with the bank’s health intact and a more efficient operation, we remain confident that we will return to profitability and our strategic efforts will bear more fruits during 2021.”
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