Low Interest Rates Halt Income Growth
Arab Bank’s financials revealed a static bottom-line performance, as net income during the first half of 2016 registered $418.74M (JOD 297.16M) in comparison with $418.76M (JOD 297.04M) by the same period last year.
Arab Bank did show a slight improvement in its net revenues by 0.31% to become $787.34M (JOD 558.74M) by June 2016. In detail, net interest income grew to $554.77M (JOD 308.74M) in H1 2016, from $540.11M (JOD 301.51M) in H1 2015. This result was below Blominvest estimates of $575.37M (JOD 407.48M) due to the steady decrease of interest rates over the year. In fact, the average trailing twelve-month interest rate on loans stood at 4.33%, with that of deposits standing at 1.80%, resulting in a spread of 2.53% between H2 2015 and H1 2016.
Meanwhile, net commission income rose from $163.02M (JOD 87.09M) by June 2015 to $165.15M (JOD 87.03M) over the same period. In terms of expenses, Arab Bank managed to reduce their non-interest expenses to $380.4M (JOD 269.95M) in 2016, down from $390.68M (JOD 277.25M) a year earlier.
Reduced Deposits Result in Lower Assets
On the balance sheet, the bank’s total assets shed 1.61% y-t-d to reach $48.26B (JOD 34.21B). Loans and advances to customers managed to gain 1.55% to $22.52B (JOD 15.95B) over the first six months of 2016, , however, time and notice deposits held at the Central Bank as well as investments in treasury bills and government bonds were scaled back, probably as a result of declining deposits at the bank.
The loan portfolio indicated that credit facilities extended in Jordan amounted to 25.82% of total direct credit facilities as of June 2016 at $5.82B (JOD 4.12B), compared to 24.96% by end-2015 with a value of $5.54B. In contrast, credit facilities extended to other Arab countries maintained their weight in the portfolio, accounting for 64.98%, increasing from $14.41B (JOD 10.20B) to $14.63B (JOD 10.36B). The remaining portion of the loan portfolio was distributed among the other remaining geographical locations by June 2016, compared to 10.09% by end-2015. This would indicate that Arab Bank is concentrating more of its loans in Jordan as a result of its avoidance of economies with reduced or near-zero rates, such as in the U.S and Europe.
Furthermore, deposits slid by 1.77% to reach $32.22B (JOD 22.84B) during the first 6 months of 2016. This could be attributed to the decrease of corporate and government and public sector deposits at Arab Bank by 9.77% and 6.27% y-t-d, respectively. As such, the weight of these depositors in the Arab Bank portfolio dropped from 31.84% to 31.09%.
Resultantly, the bank’s loan-to-deposit ratio increased from 67.63% by last year to reach its 3-year peak of 69.91% in H1 2016. Historically, Jordanian banks have averaged an LTD ratio of close to 70%.
For the full report: Arab Bank Valuation Report