First Gulf Bank: Financial services

THE COMPANY: Established in 1979 and headquartered in Abu Dhabi, First Gulf Bank (FGB) provides conventional and Islamic commercial banking services, including deposits, loans and credit cards; conventional and Islamic investment banking services, such as corporate finance and investment advisory on mergers and acquisitions, initial public offerings and underwriting; conventional and Islamic asset management services, including fund, portfolio and wealth management; and conventional and Islamic private equity investments. After a somewhat rocky start, FBG overhauled its management team in 2000 and now has a strategic alliance with Citibank.

FGB has a wide distribution network of branches in different business and industrial areas across the country. Its 19 branches are being served by a work force of nearly 900 in number (as of June 30, 2012). The cornerstone of FGB’s growth strategy in the domestic market is to build up opportunities with strategic partners as well as with the key players of Abu Dhabi’s Economic Vision 2030.

FGB is also currently one of the fastest growing banks in the region, with a presence in Qatar and Singapore, and representative offices in London and India. It has been part of FGB’s growth strategy to focus on the key trade partner countries of the UAE as vehicles for international and regional expansion.

FGB is majority owned by the ruling family of Abu Dhabi, who have 67% of the overall shareholding. FGB has recently launched a $650m five-year bond, which is priced at a spread of 210 basis points over mid-swaps. This latest facility is issued under the bank’s $3.5bn medium-term notes programme. This issuance follows FGB’s $500m sukuk (Islamic bond) that was issued in January 2012.

FINANCIAL PERFORMANCE: Attributable profits for the first half of 2012 increased by almost 11% at Dh1.95bn ($530.76m). The rise in FGB’s profitability came on the heels of healthy credit volume growth. Loans, as of June 30, 2012, advanced by 6% to Dh110.95bn ($30.20bn). New loans were originated by a diverse clientele base comprising government-related entities, private corporate and retail clients, in addition to the multinational customers booked locally and overseas. Deposits also advanced but by a slower rate of 1.26% to Dh104.77bn ($28.52bn). Revenues from conventional and Islamic banking improved by 8% to Dh3.72bn ($1.01bn), offsetting the decline in income from associates and joint ventures (which dropped by 38% to Dh7.10m [$1.93m]) and commission and fee-based income (the combined amount dropped by 10% to Dh515m [$140.17m]).

Despite the fact that the loan-to-deposits ratio at the end of June 2012 stood at 106%, the bank regulatory ratio of advance to stable deposit of 89% remained comfortably below the maximum allowance of 100%. At the same time, the liquid asset ratio was maintained at 12%. The bank has also started benchmarking its current liquidity ratios to the new one that will be implemented beginning in 2013 as per the new central bank regulations on liquidity. The ratio of nonperforming loans to gross loans was 3.6% at June 30 against 3.4% at December 31, 2011. The capital adequacy ratio improved to a record 22%, against 21.5% in the comparable period.

SHARE PRICE PERFORMANCE: The difficulties faced by European banks are translating positively for the local banks. As European banks retreat from the local credit market, local lenders like FGB benefit. With its 6% loan volume growth, FBG led the local banks in posting a positive loan growth in the first half of 2012. With such positive signals, investors seemed to increase their appetite for FGB, with share price rising by 27% from end-June until September 25. The medium-term support for FGB stands at Dh9.20 ($2.50) per share, followed by Dh8.60 ($2.34). Resistance level is seen at Dh10.40 ($2.83) per share, then at Dh12.00 ($3.27). Note that these sentimental barriers were spotted as of September 30, 2012 and based on a closing price of Dh10.00 ($2.72) per share.