The banking sector in the UAE is the largest sector in the economy. Research indicates that the banking sector contributes about 38% of the GDP (International Monetary Fund, 2011). Further, the asset base of the banking sector stood at 152% of the GDP going by the 2014 financial year results. This paper presents the analysis of two banks operating in the UAE. The analysis uses the 2014 financial statements considering that majority of the banks in the country are yet to release their annual results for 2014. The analysis includes the common size ratios as well as other ratios including the EPS. The two banks analyzed in this case include the Abu Dhabi Commercial Bank (ADCB) and the Arab African International bank (AAIB). ADCB reports its financials in AED while the AAIB reports its financials in USD. One of the benefits of ratio analysis is that ratios enable comparability even in instances where the currency of reporting is not the same.
The table above shows the common size ratios for the ADCB. The common size ratios were computed by expressing all entries as a percentage of the total assets. From the analysis, the bank’s loans and advances account for 69% of the assets (ADCB, 2015). The interest in this entry is that the commercial is in the business of advancing loans for interest which makes the loans and advances its greatest asset. Further, the analysis indicates that the total liabilities of the company account for 87% of all assets. This ratio indicates the firm’s ability to meet its obligations using the critical assets that are its loans and advances to the customers. Of particular interest among the liabilities is the ratio of customer’s deposits. According to the analysis, the deposits from the customer’s account for 62% of the assets. This makes the deposits the single largest liability of the bank and since the deposits are lower than the loans and advances, the company can be considered as a net lender. Additionally, the company is also a net lender of overnight drafts to other banks considering that the dues from other banks account for 8% while the dues to other banks account for only 2%.
Focusing on the common size balance sheet for the Arab African International Bank, the analysis indicates that loans to customers are proportionately 39% of the total assets. This is lower than that of the ADCB where the same item accounts for 69% of the assets (ADCB, 2015). Further, the analysis indicates that the customers’ deposits account for 82% proportionate to the assets. This indicates that in general, the deposits exceed the loans and advances to customers.
Focusing on the common size income statement, the ADCB reported a net profit for the year accounting for 66% of the interest revenues. The interest expense accounts for (20%) of the interest. However, the bank also provides sharia complaint products and as a result the income statement from the Islamic banking function account for 8% of the interest revenues.
The AAIB on the other hand reported a net profit that accounts for only 25% of the total revenues. The interest expenses stand out as the greatest cost for the company accounting for 61% of the expenses. Consequently, the firm can be considered to be performing poorly in the issuance of debt interest and the subsequent earning of interest income. The rationale for using interest income in this computation is that it is the main source of revenues for the banking sector.
Concluding from this analysis, it is evident that the Arab African International Bank is performing rather poorly compared to the Abu Dhabi Commercial Bank (African Arab International Bank, 2015). The analysis indicates that the company accepts more deposits but it has not been able to properly market itself as the to-go-to lender. Consequently, the analysis recommends that the company focuses its marketing functions to selling loans products in order to grow the loans and advances to customers and proportionately grow the interest income.
The Arab African International Bank has a website through which it advertises its products. Most of the products marketed on this website as safe deposits such as green pearls (Int'l Business Publications, 2014). However, these products seem to be resulting in lower returns that the loan and advances products. The company should therefore focus on marketing its loans products to the customers more than it does market the safe deposits and the cash deposits.
References
Adcb. (2015). Annual report of 2014. Retrieved from http://www.adcb.com/about/investorrelations/financialinformation/ARsite/2014/downloads/ADCB_AR14_English.pdf
African Arab International Bank. (2015). Annual report of 2014. Retrieved from http://www.aaib.com/financialSynopsis/openPdf?file_id=100
International Monetary Fund (2011). United Arab Emirates: Selected issues and statistical appendix. Washington, DC: International Monetary Fund.
Int'l Business Publications. (2014). UAE: How to Invest, Start and Run Profitable Business in the UAE Guide - Practical Information, Opportunities, Contacts. New York: Int'l Business Publications
