Arab Banking Corporation (B.S.C.) (ABC) Earnings Call Transcript

Good afternoon ladies and gentlemen, and welcome to Bank ABC's Investors Call for the period ended 30th of June 2026. Today's session is hosted by Suresh Padmanabhan, Bank ABC's Acting Group Chief Financial Officer; and Suresh will shortly begin with a presentation on the bank's financial results and strategic progress. Following the presentation, I'll be moderating the Q&A session. You're as always very much welcome to drop us any questions using the question feature on Zoom. And we will do our best to address all the questions that we have received ahead of our call today and during the session. But before we begin, let us take a moment to watch a short video highlighting the bank's key achievements in the first half of 2026. [Presentation]

Over to you, Suresh.

Thanks, Fatema. Good afternoon, and thank you for joining our half 1 2026 investor call. Today, together with my colleague, Fatema, who will talk you through an overview of half 1 2026 highlights covering an update on our resilience, our sustainability program, the recognition and awards received during this period. And then I will share a review of our financial performance, followed by Q&A. The first half of 2026 was marked by a very challenging operating environment with heightened regional uncertainty arising from prevailing conflict conditions. Our business continuity capabilities were tested and proved highly effective. We were able to offer uninterrupted service to our clients and our operations remained stable. This was achieved while prioritizing the safety and well-being of our employees. Against this backdrop, the strength of our diversified franchise and the core businesses helped to deliver solid revenue growth with the total operating income up 5% year-on-year to reach USD 697 million. Net profit was USD 111 million, lower than last year, mainly due to prudent provisioning in response to the evolving macroeconomic environment. Our underlying portfolios remains stable. Our balance sheet remains strong, underpinned by solid capital funding and liquidity. Overall, given the scale of external challenges, we are pleased with the bank's resilience and financial performance in the first half. While business activity has been somewhat affected, we are hopeful of the gradual normalization of geopolitical conditions to support business sentiment through the remainder of 2026. Reflecting more on our experience in half 1, second quarter in particular, the group has navigated this period of uncertainty from a position of strength. This was made possible through a well-established business continuity framework, supported by a dedicated team and strong financial fundamentals. Our focus was on 3 priorities: protecting our people across impacted locations. This included a full transition to remote working at head office and relocation of critical staff where needed. Our business continuity capabilities enabled a swift moving to remote working. Continued uninterrupted operations, maintaining client services without disruption. Third was preserving financial strength through disciplined risk management and prudent provisioning. In execution, we enabled flexible working arrangements, ensured seamless service delivery, mitigated financial impacts, strengthened our scenario analysis and contingency planning and adjusted elements of our strategy and transformation road map where appropriate. The management and the Board remain actively engaged in the bank's crisis response program. We continue to monitor developments closely and stand ready to act decisively as needed. I will now request Fatema to take us through our progress on sustainability initiatives and the awards during this period before I give more details on the financial performance.

Thank you very much, Suresh. So turning to sustainability. It remains to be a key part of our strategic transformation road map. During the first half of this year, we have strengthened our ESG framework and reporting capabilities. We have published our group sustainability disclosures report for the year 2025. We have accelerated our environmental impact reduction plan for our global operations and established a 5-year environmental reduction target across the group. We have also adopted a new ESG data platform to enhance the quality, consistency and transparency of our reporting. And of course, looking ahead, we very much remain focused on embedding sustainability further into the business, including alignment with IFRS 1 and 2 and advancing our sustainable finance agenda. We believe that the foundations we have built now position us to deliver measurable business value and long-term stakeholder impact. And on the awards, so far in 2026, the group has received more than 15 prestigious awards, reflecting the strength and the breadth of our capabilities. Among them, our Egypt mobile banking app was named the best mobile banking app in the Middle East by MEED. We have also received 4 recognitions from Global Finance for the leadership -- our leadership in cash management, liquidity management and cross-border payments across the Middle East. In addition, our digital mobile-only ila Bank was named the best retail digital bank in the Middle East by MEED, which is a testimony for its leadership in digital banking and customer experience. So overall, we are very much pleased with the continued industry recognition, which reinforces our position as MENA's International Bank of the Future. And with all of that, I conclude my section, and I'll hand over to Suresh, who will be presenting to you the group's financial performance in greater detail.

Thank you, Fatema. That is some quite encouraging, a very wide-ranging set of awards, a solid recognition of the progress we are making in various fronts. With that, I will now present the group's financial performance in more detail. Considering the operating conditions in some of our key markets, our half 1 2026 performance was resilient. Our core businesses and diversified franchise helped to sustain the revenue momentum during the first half of the year. Total operating income grew 5% year-on-year to reach USD 697 million as compared to USD 666 million reported at this stage last year. Revenues tracked higher across most of our businesses and markets. Strong performance in Europe and Brazil compensated for somewhat moderated performance, particularly in markets affected by the geopolitical challenges. Our revenues remain well diversified across the franchise, reducing concentration and supporting more stable earnings. Our international wholesale banking and group treasury businesses contributed 27% of our revenues, Brazil contributed 37%, MENA subsidiaries contributed 19% and 17% was from other sources of income, including our digital units, ila and Arab Financial Services. Overall, this revenue performance demonstrates the strength of our diversified business model to enable sustained revenue growth across geographies and business segments. Turning on to our cost and efficiency metrics. The bank continues to maintain disciplined cost management while investing as required in its strategic priorities, particularly digital transformation and further developing our Bank of the Future. Operating expenses increased by 9% year-on-year to reach USD 423 million, part of the growth also driven by foreign exchange movements. The costs reflect targeted investments in technology, operational resilience and growth initiatives across the group. As a result, the cost-to-income ratio stands at 60.7% compared to 58.1% at this stage last year. Adjusting for the ongoing digital investments, cost-to-income ratio improves to 56.4%. Overall, we continue to strike a balance between investing for future growth and maintaining a disciplined approach to costs and operational performance. Moving to asset quality. Our business growth is being prudently managed by our robust risk appetite frameworks. We adopted a more cautious provisioning approach during the period, reflecting the elevated macroeconomic and geopolitical uncertainty across our markets. As a result, ECL charges increased to USD 84 million as compared to USD 44 million reported last year, an increase of USD 40 million year-on-year. Reflecting the above, the cost of risk was at 76 basis points compared to 41 basis points last year. It is important to note that last year benefited from certain one-off recoveries at the half 1 stage and also a very benign provision experience, which contributed to the pronounced year-on-year movement. Despite the higher provisions, underlying asset quality remains resilient. The NPL ratio was at 3.5% and provision coverage ratio was 85%, both remaining at very healthy levels. Overall, these metrics reflect our disciplined risk appetite, robust risk management framework and prudent provisioning approach, which continue to support sustainable growth. In summary, a combination of the factors explained above resulted in the net operating profit before provisions and taxation remaining broadly stable at $274 million as compared to USD 279 million last year, highlighting the resilience of the underlying business. Higher and more prudent impairment provisioning in the middle of geopolitical and macroeconomic uncertainty for the period resulted in a moderation of the net profit for half 1 2026 to USD 111 million as compared to USD 152 million last year, a 27% year-on-year change. Moving on to the balance sheet. We continue to maintain a strong and diversified asset profile, reflecting disciplined balance sheet management in a dynamic operating environment. Loans grew by 4% during half 1 2026 as compared to year-end 2025, demonstrating continued momentum across our core businesses and client franchise. Total assets stood at USD 46.9 billion with the movements reflecting normal balance sheet optimization and short-term funding and liquidity management activities. Our balance sheet remains highly liquid with the 58% of total assets maturing within 1 year, providing significant flexibility to navigate changing market conditions. Our funding profile remains stable with the prudent liquidity levels. As for our balance sheet health, our emphasis has consistently been on maintaining a strong balance sheet with a prudent capital and liquidity metrics. All our ratios are well above regulatory minimum levels. Total capital adequacy ratio was at 16.4% and the Tier 1 ratio was at 15.5%. Core equity Tier 1 ratio was at 13.2%, which composes the majority of Tier 1 ratio. Risk-weighted assets stood at USD 32 billion, increasing by 4% as compared to year-end 2025. Our core equity Tier 1 ratio remains strong after absorbing the dividend payout and growth in risk-weighted assets. From an overall liquidity and funding perspective, our LCR and NSFR ratios are at healthy levels of 267% and 123%, respectively. In summary, the group delivered resilient performance in the first half of the year, supported by strong execution, effective crisis management and uninterrupted client service despite a challenging operating environment. Revenue momentum remained strong with the total operating income increasing 5% year-on-year to reach USD 697 million, reflecting the benefits of our diversified business model and broad-based growth across core businesses. Net operating profit before provisions and taxation remained broadly at comparable levels to last year. We adopted a prudent approach with higher provisioning, reflecting macroeconomic conditions. Net profit stood at USD 111 million, absorbing the higher impairment charges, although underlying business momentum across key markets remains resilient. Asset quality, capital and liquidity metrics remain healthy, underpinned by a disciplined risk management framework and a well-diversified balance sheet. All capital and liquidity ratios remain comfortably above regulatory requirements and providing capacity to support future growth. Looking ahead, we are hopeful of geopolitical conditions to stabilize and improve business sentiment through the remainder of 2026. Overall, the group is well positioned to navigate the uncertainties while continuing to execute its strategy and deliver sustainable growth. I will now hand over to Fatema, who will be moderating the Q&A session.

Thank you very much, Suresh, for the informative presentation and congratulations to Bank ABC's colleagues across our 15 countries of presence on the delivery of these resilient results. So over to Q&A.

Let me start with one of the questions that we have received ahead of the session today. Suresh, the question is inquiring on how exactly are we navigating the geopolitical uncertainty in terms of business impact and continuity?

Thank you. Very topical. The bank's operations have remained uninterrupted across all markets, reflecting the resilience of our technology infrastructure and business continuity capabilities. Enhanced governance through our crisis management team and business continuity framework ensures proactive risk monitoring and swift decision-making. Strong liquidity, diversified funding and real-time risk oversight position the group to manage evolving geopolitical and market developments. The regional conflict is affecting global markets, trade and investment flows. There is increased volatility in exchange rates and also commodity prices. These are expected to sustain inflationary pressures and keep interest rates elevated. Our strong capital and liquidity position, robust risk management, strong ownership structure and healthy portfolio gives us confidence that our business will weather these challenges. Looking ahead, we remain cautiously optimistic and believe our diversified franchise is well positioned to navigate these uncertainties and also capitalize on opportunities as conditions normalize.