Arab Banking Corporation (B.S.C.) ($ABC)

Good afternoon, ladies and gentlemen, and a warm welcome to our valued investors. I would like to thank you for joining Bank ABC's Q1 Earnings Investors Call hosted by Brendon Hopkins, Bank ABC's Acting Group CEO and supported by Suresh Padmanabhan, our Acting Group CFO. Shortly, Mr. Hopkins will commence the session with a presentation on the bank's financial results and recent achievements. Following the presentation, I will be moderating the Q&A session, and you are very much welcome to submit your questions using the question feature on Zoom and we will do our best to answer your questions along with the questions that we have received ahead of the session during our time today. But before we begin, let's take a few moments to watch a video that highlights the bank's achievement and strategic progress during the first quarter of this year. [Presentation]

Over to you, Brendon.

Thank you, Fatema, and good afternoon, everybody, and thank you for joining our Q1 investors call. Our agenda today is going to cover 4 areas. I'll start with a summary overview of the highlights in Q1. Suresh will cover the group's financial performance. I'll then cover a couple of recent news items, completion of our CEO succession plan and our credit rating information and we'll then finish as usual with our Q&A session. So first, a summary of the key highlights. The first quarter of 2026 unfolded against challenging regional developments and broader geopolitical uncertainty. In this complex environment, Bank ABC maintained operational continuity and supported its clients closely. We continue to execute our strategy and make progress on our longer-term value creation objectives. And despite the external headwinds, we delivered resilient Q1 financial performance. Revenue momentum continued to be a key underlying performance driver, reaching $344 million, a growth of 5% year-on-year. We maintained our balance sheet strength with strong capital and liquidity ratios and robust buffers above the regulatory minimum. The group net profit was USD 52 million, and although lower than the previous year, this was mainly due to higher impairment provision charges, which rose against the backdrop of the regional conflict combined with one-off recoveries that benefited last year, and Suresh will expand more on this in his section of the presentation. Turning to the recent geopolitical challenges and the conflict in the region. I'll spend a couple of minutes expanding on our successful business continuity and crisis management efforts. The group continued to operate with resilience, managing the situation from a position of strength. The approach was anchored around 3 key priorities: first, the safety and well-being of our staff. We took immediate action to implement measures to support employees across impacted locations. For example, 100% of employees at office transitioned from the very start of the crisis to work from home during the most extreme conflict conditions and members of our critical functions such as IT, treasury and operations relocated to other branches and other locations. So the bank remains fully operational throughout with no disruption to our client services. Our infrastructure and continuity planning enabled seamless operation across all core activities and our disaster recovery plans proved to be effective while remaining now on a state of high readiness should they be needed. Thirdly, we continued to maintain a strong financial position while actively managing the risks. We boosted our liquidity buffers, as you can see from the strong ratios. We took a prudent approach on provisioning for the crisis conditions taking into account the forward-looking needs of IFRS 9. And we've also been stress testing our credit portfolio and developing mitigation plans for heightened regional economic pressures. We continue to monitor the developments and like others are obviously hopeful for a peaceful resolution. But we're also cautious in our view on the outlook and appreciate that the time frame to achieve this could extend and therefore, exacerbate the regional economic challenges. Nevertheless, the bank's strong fundamentals and disciplined approach gives us confidence in the ability of the group to navigate the challenges ahead while continuing to support our clients and all our stakeholders. Turning to our industry position. This is a more positive story continuing through Q1. Bank ABC's brand and reputation continues to strengthen year-on-year. By the end of Q1, the group had gained 11 more prestigious awards across multiple categories, reflecting the depth and breadth of our capabilities. We're proud to have been recognized by Global Finance as the best trade finance provider in both Middle East and Bahrain. The awards underscore the strength of our digitally enabled trade finance platform and our continued focus on delivering high-quality solutions to our wholesale clients. We're also proud that ABC Labs, our dedicated innovation and digitization center has been recognized again by Global Finance as one of the world's best financial innovation labs marking a fifth time win and underscoring our continued focus on innovation and customer-centric solutions. We're also very proud to have received 8 IFM awards, recognizing our Islamic banking strengths. And these acknowledgments span innovation, digital capabilities and market leadership across the franchises. They reflect the breadth of our platform, Bahrain, Jordan and London and reinforce our continued focus on delivering differentiated, high-quality Sharia-compliant solutions. So that's a summary overview of some of the highlights. I'm going to hand over to Suresh, and he will take us through the group's financial performance in greater detail for the quarter.

Thank you, Brendon. That was a comprehensive overview of our experiences through the quarter and our achievements. Now shifting to more detailed financial results. I will expand on the factors that have driven our performance in the first quarter of 2026. From a revenue perspective, the group's total operating income reached $344 million. That is a 5% growth over last year, which was $328 million. The core business momentum has been resilient despite the crisis affecting operating environment in some geographies. This reflects the group's strength of diversified revenue composition. In particular, performance growth in Brazil and the digital units compensated for somewhat moderated performance in other parts of the group. In addition, there were also one-off revenues last year, which did not recur, but they were also compensated by stronger FX impact this year. Our revenues continue to remain well diversified across the franchise, supporting more stable earnings trajectory. Our International Wholesale Banking and Group Treasury businesses contributed 28% of total operating income, whilst Banco ABC Brazil contributed 36%. MENA subsidiaries contributed 19% and the 17% was from other sources of income, primarily our digital units ila and AFS, who have been steadily growing their income contribution into the group. Overall, the revenue mix highlights the strength of our multi-market business presence and the effectiveness of our strategy to build balanced revenue streams across geographies and business lines. Moving on to our efficiency metrics. The bank continues to maintain strong cost discipline while investing in its strategic priorities, particularly digital transformation and further progressing towards our vision of MENA's International Bank of the Future. Operating expenses for the quarter was at $212 million, up 9% year-on-year, reflecting the targeted investment, normal business growth, inflation as well as impact from foreign exchange appreciation. Absorbing these costs, the cost-to-income ratio stands at 61.6%, slightly higher as compared to 59.4% last year. Adjusting for the ongoing digital investments, the ratio improved to 57.3% demonstrating underlying efficiency. Overall, this reflects our balanced approach, driving innovation and growth while maintaining a firm focus on cost discipline. Turning to ECL and asset quality. Our business growth is prudently managed by our robust risk appetite and the risk frameworks. During the first quarter of 2026, the ECL charges increased to $46 million as compared to $25 million last year. As a result, the cost of risk increased to 84 basis points compared to 42 basis points last year. This reflects our prudent and forward-looking approach to provisioning which factors in the evolving macroeconomic and geopolitical environment. Importantly, underlying asset quality remains stable as compared to last year with the NPL ratio steady at 3.3% and a coverage ratio of 87%, both at healthy levels, similar to this time last year. However, as compared to year-end 2025, our NPL ratio improved by 40 basis points from 3.7% at year-end to 3.3% at quarter 1. Overall, these metrics reflect a disciplined risk management and strong coverage buffers. Our credit risk management practices remained robust and are maintaining vigilance on the credit outlook going into the rest of 2026. Turning to the balance sheet. Our asset profile is well diversified and liquid. Loans increased by 2% during the quarter since year-end, highlighting continued underlying growth in our core businesses. Total assets stood at $47.2 billion, somewhat moderated from year-end 2025 levels, reflecting short-term asset liability management actions. Our asset mix remains well diversified across instruments with a balanced mix of loans, securities and liquid assets. The balance sheet remains well positioned from a liquidity and maturity perspective with around 60% of assets maturing within 1 year and a healthy loan-to-deposit ratio of 79%. Turning on to balance sheet health. It has been our consistent priority to maintain a strong balance sheet. Capital and liquidity levels remain robust, absorbing the shocks during this period and the position well to support future business growth. All ratios are well above regulatory minimum levels, with the total capital ratio at 15.9% and Tier 1 ratio at 15%. Core equity Tier 1 at 12.7% comprises the majority of Tier 1 ratio. Our core equity remains strong after absorbing the dividend payout and market volatility amongst the geopolitical crisis. Risk-weighted assets stood at $32 billion at the end of quarter 1, increasing 4% since year-end 2025. Finally, from an overall liquidity and funding perspective, our LCR and NSFR ratios are at healthy levels of 311% and 127%, respectively. That completes the detailed insights into the first quarter financial performance and financial position. Over to you, Brendon, for your concluding comments.

Thank you, Suresh. In summary, the group demonstrated strong operational resilience during the crisis, ensuring uninterrupted client service while prioritizing staff safety and well-being. We delivered robust revenue momentum total operating income reaching $344 million, up 5%. This was supported by a well-diversified franchise and improved core business performance. We adopted a prudent risk approach. Our higher provisioning reflects macroeconomic conditions, while the asset quality and coverage ratios remain healthy. And the net profit stood at USD 52 million, impacted by higher impairment charges, although the underlying business momentum across key markets remained resilient. And as Suresh has got into some detail on, the balance sheet remains suitably well diversified, very liquid, supported by strong ratios, all comfortably above the regulatory requirements. So overall, the group is well positioned to navigate uncertainty ahead while still continuing to execute its strategy and deliver sustainable growth. So as I started off at the beginning on the agenda, I said I'd briefly touch on 2 positive news developments, which we also published this week. The completion of our group CEO succession planning and affirmation of our investment-grade credit rating by Fitch Ratings. On the first, I'm very pleased to say that the Board and CPP have confirmed the approval of Paul Jennings as group CEO, which will be effective on the fifth of August. I won't repeat all of the announcement. This is available on our website. But suffice to say that Paul is a seasoned bank CEO. He has extensive prior experience with Bank ABC as CEO of our U.K. subsidiary, ABCIB and with British Arab Commercial Bank since then. He also got extensive knowledge and experience of our core markets and business model as well as long-standing relationships with many of the bank's senior leaders. From my own perspective, I was very honored to be asked by the Board to cover the Ag CEO, acting CEO position on an interim basis, essentially delaying my own retirement plan which was originally intended for March this year, whilst the Board completed their search for a permanent successor to Mr. Sael Al Waary, who you'll recall retired in January. And I'm also going to somewhat further delay my retirement to assist in an advisory capacity to ensure a smooth transition to Paul after his start date in August. I'm very confident that Paul will be a great choice to lead the bank into the next phase of its strategic journey, and we'll have the full support of the Board and the Bank ABC leadership team to enable him to hit the ground running. Turning to our credit rating. We were very pleased that Fitch ratings have affirmed the investment-grade rating for the bank as BBB- with outlook stable. This was particularly notable given the complex and uncertain external environment. In its assessment, Fitch highlighted several key strengths to the group including our diversified geographic footprint, the strong wholesale banking franchise, prudent underwriting standards with stable asset quality, resilient funding and liquidity metrics. They also noted strong capitalization and importantly, reconfirmed that the bank's ratings are not constrained by the sovereign rating of Bahrain, reflecting the strength and independence of our international funding profile and liquidity position. The positive outcome on the rating reflects Fitch's effective understanding of the group's fundamentals, our strategic direction and our risk profile. And it also recognizes the resilience of the group demonstrated through the recent crisis conditions. And on a final note, I'd just like to thank all of my colleagues, senior team colleagues on the crisis management team who enabled the bank to operate effectively during this most difficult period, and indeed to all our staff, who stayed very focused and very dedicated during these difficult times. So I'll now hand over to Fatema, who will be moderating the Q&A session. Fatema, over to you.

Thank you very much, Brendon. Thank you, Suresh, for the informative presentation. And congratulations to the Bank ABC team across our 15 countries of presence on the delivery of these resilient results.

Moving on to the next part of our session today, which is answering the questions. We will start with the questions that we have received so far and wait on any questions that we may get on the Q&A feature. So the first question, I will be addressing it to you, Brendon. And basically, it's inquiring about how is the bank navigating the geopolitical uncertainty in terms of the business impact and continuity?

Okay. Yes. I think I've touched on a number of these points during the presentation, but I'll expand a little bit more. And as we know, the regional conflict is clearly affecting markets, trade and investment flows. This is having the effect of driving some increased volatility in exchange rates and commodity prices and is also expected to keep inflation elevated and interest rates higher for longer. But from a Bank ABC perspective, as I've already noted, we do have a diversified geographic footprint and this does provide us with some natural hedge across our markets. So we have some commodity exporting markets such as Brazil, Algeria, Libya which are offsetting some of the headwinds in other economies that are more directly affected by the crisis. As I've mentioned a few times, we operated without disruption across all the markets. This was again supported by our investments over the years in technology, our digital infrastructure, our cloud-based investments -- all of these are investments in BCP, business continuity disaster recovery, all ensured our operational resilience and meant that we could maintain uninterrupted client service throughout the crisis. And this again is partially organized and led by a group-wide business continuity management framework. And as I referenced a senior crisis management team, and this team was meeting sometimes 2, 3 times a day during this period to ensure that our plans are being effected, the situation is being monitored, and we had a rapid decision-making across relevant businesses and operational issues. We also maintained resilience measures, strong liquidity. We boosted liquidity in the early stages and pleasingly saw that maintained with the bank remaining in effect, a strong magnet of funding sources and liquidity through the region. We also continue to perform intensive risk monitoring and stress testing to ensure that we are on top of any market or credit developments across our franchise. So as we look ahead, we do remain hopeful for a peaceful resolution. But clearly, this is uncertain and the time frame is obviously pushing out for the regional situation to unlock from an economic perspective. But the group does have a diversified franchise, strong liquidity and robust risk management. And this will position us well to navigate the ongoing uncertainty and hope that conditions stabilize and growth returns across the year. I think that's it on that one.

Thank you, Brendon. And the second question is about ECL. Basically, the inquiry is to try to understand why has it increased in the first quarter of 2026. And if we are going to continue to see this trend through to year-end, maybe, Suresh, you'd like to take this question?

Yes, I can. I think to reflect on whether this trend will continue through the rest of the year. What is important is for us to understand how the Q1 ECL was composed of. So to remind, again, as I covered earlier in my presentation, last year's ECL charge benefited from certain significant recoveries which therefore resulted in last year's ECL somewhat better than our historic experience. Because of this, the current year's charge of $46 million in comparison to last year appears a lot more pronounced than what is normal. The current year's ECL of $46 million is somewhat higher than our traditional experience, reflecting a more cautious provisioning stance, incorporating forward-looking macroeconomic factors that reflect the evolving geopolitical environment. As a result, our cost of risk increased to 84 basis points in Q1 compared to 42 basis points last year, which is a demonstration of our prudent provisioning approach. More important to note is our underlying asset quality remains very stable. The NPL ratio is steady at 3.3% and coverage ratio at 87%, both at healthy levels compared to Q1 last year. However, if I look at the most recent year-end 2025, the NPL ratio improved from 3.7% at year-end to 3.3% now. Our credit risk management practices remain robust. We are maintaining close vigilance on credit underwriting and portfolio outlook going into the rest of 2026. Overall, this reflects the balanced approach of disciplined risk management and a strong coverage buffer while supporting continued business growth. So that's how I will reflect on this.

Thank you very much, Suresh. The third question is inquiring about the expectations on the bank's performance for the rest of 2026, given the significant year-on-year drop in the net profit. Maybe Brendon, you'd like to give us your views on this?

Sure. Yes, I think on the first quarter, as you'll have seen, the group net profit was $52 million. This was reduced from $76 million in Q1 2025. However, the core business momentum has still been maintained, and it's largely reflective of a single factor, which is Suresh just talking about was the higher ECL charge. This increased significantly, as I explained, up to about $46 million was driven by the 2 primary components that he outlined the IFRS 9 and provisioning stance on macroeconomics and also a benefit last year, which has affected the year-on-year comparison. But I think it's more important to focus on the underlying business momentum which has remained resilient. Total operating income grew at 5%. And depending on how the post crisis conditions play out, we hope to see some of that momentum continuing through the rest of the year. Our net operating profit was broadly stable at $132 million. And again, we hope to see that potentially pick up. But again, this will depend on how the regional situation plays out. As I've said many times, it's not our policy to announce the forward-looking guidance on net profit or ROE targets. However, the strength of the franchise, the diversification, the robust revenue momentum and a healthy balance sheet, position the group well to navigate the changes ahead and hopefully end with still a good and resilient year for the whole of 2026.

Excellent it seems like we haven't received any questions live. Correct? nothing. Thank you, Brendon Thank you, Suresh. Thank you, team. I think it's time for us to conclude our session. I'd like to thank everyone who have joined us virtually today.

And one more point.

Of course. Of course.

So given the news that I've outlined about new CEO, our next results probably would be later in August. So this will very likely be my last -- almost certainly be my last earnings call. And I'd like to thank, in particular, my team here who have been working with me over these last few years on these calls. I hope the -- they've been well received. It's been a new innovation for the bank in the last 3, 4 years or so. And we've enjoyed the interaction. So thanks to Fatema, thanks to Suresh to Asif and [indiscernible] don't see on the screens, but they've been a great support too. So thank you very much, guys, and wish you well for the next 1 in later in August.

Yes, likewise. Thank you, Brendon, for setting this up, steering this and bringing it up to a certain level over these years. We truly appreciate it and enjoyed these sessions. Thank you.

Thank you.

Thank you, Brendon. You will certainly be missed. Thank you all once again for joining us virtually. You are always -- just a reminder, you're always very much welcome to send us any questions and our Investor Relations team will make sure that they respond to them until we see you again in the next quarter. Thank you very much, and goodbye.

Thank you.