National Bank of Abu Dhabi (NBAD) earned AED 4.733 billion for the financial year ended 31 December 2013 , up 9.3 per cent from AED 4.332 billion in the previous financial year 2012 primarily driven by higher net interest income and fee income. This represents diluted EPS of AED 1.04 for FY 2013 versus AED 0.95 for FY 2012. Net profits were up 4.0 per cent to AED 1.077 billion in Q4 2013 versus AED 1.035 billion in Q3 2013, but were down by 3.9 per cent as compared to Q4 2012. The annualised return on average equity for FY 2013 was 14.4 per cent, down from 15.1 per cent in FY 2012. H.E. Nasser Alsowaidi, Chairman of NBAD said, "In 2013, NBAD once again delivered solid results. We delivered strong revenue and earnings growth whilst maintaining our solid balance sheet and strong capital position. Notably, the Bank was awarded the prestigious Sheikh Khalifa Excellence Award - Diamond Category in 2013, an award which confirms NBAD's position as a leader in the financial industry." Alex Thursby , Group Chief Executive said, "Our results in 2013 were solid, and we are beginning to see momentum increase as we execute against our 5-year strategic plan. We have laid out a new mission to be 'core to our chosen customers', and we are now focused on capitalising on our unique positioning at the heart of the 'West-East Corridor'. During the year, we won many prestigious awards and were upgraded to AA- from A+ by S&P, a notable event as we are now one of 20 commercial banking groups globally to be rated AA- or equivalent by all three major rating agencies." "We are well positioned to continue the momentum we have begun to see as we enter 2014. The restructuring of our organisation has commenced and we are investing in our new strategy and building the operational 'spine' of the Bank. Our focus is on building new drivers of non-interest income and our results are beginning to show strong improvements in underlying revenue performance. As a result of the reorganisation and investments in building the spine, there were some planned 1-time expenses in the 4th quarter which will not repeat. Going forward, our strategy is to grow our Wholesale, Wealth and Retail & Commercial businesses with concurrent growth in CASA as we expect continued margin pressure." "I am confident that we will continue to successfully execute against our strategy, and I am excited by the prospects for NBAD in the coming years," Mr. Thursby concluded. Global economic activity grew approximately 3 per cent in 2013, down from around 3.3 per cent in 2012 as advanced economies contributed less than emerging markets. Entering 2014, there are several trends which are favorable for the near-term economic outlook including easy monetary policy, record low interest rates and stimulus by major central banks. NBK Capital MENA comments… Operating income in-line but weaker-than-expected loan growth National Bank of Abu Dhabi (NBAD) reported a net profit of AED 1.1 billion in 4Q2013 (-4 per cent YoY, +4 per cent QoQ). The key drivers for the sequential increase in net profit were higher fee income and investment income. Net profit for FY2013 came in at AED 4.73 billion, up 9 per cent YoY but 2 per cent below our forecast on higher-than-expected provisioning. Operating income in line with our forecast. Total operating income came in at AED 2.33 billion in 4Q2013 (nearly flat YoY, +6 per cent QoQ), resulting in an operating income of AED 9.4 billion in FY2013, 8 per cent above FY2012 and nearly matching our forecast. Net interest income increased 7 per cent YoY and 1 per cent QoQ in 4Q2013, resulting in 7 per cent growth in FY2013. The NIM declined in FY2013 driven a by combination of declining asset yields, increased liquidity, and stronger competition. Strong growth in non-interest income in 4Q2013 (+21 per cent QoQ). Investment income bounced back after two weak quarters reaching AED 62 million versus AED 9 million in 3Q2013 and a loss of AED 24 million in 2Q2013. Fee income stood at a record high in 4Q2013, increasing 28 per cent YoY and 14 per cent QoQ to contribute 22 per cent of operating income compared with 19 per cent in 9M2013. Balance sheet shrinks in 4Q2013. Loans were up less than 1 per cent in 4Q2013, which was weaker than our forecast. On the other hand, the bank chose to let go of excess liquidity resulting in an 8 per cent sequential decline in deposits in 4Q2013. It is worthy to note that relatively cheap interest-bearing deposits (CASA) grew at a healthy pace in 4Q2013 (+13 per cent QoQ and +30 per cent in FY2013), thus resulting in a 28 per cent contribution to total deposits as of December 2013 (22 per cent in September 2013 ). Asset quality indicators continue to show steady improvement, in line with our view. The NPL ratio declined to 3.16 per cent in December 2013 from 3.3 per cent in September 2013 while the NPL coverage ratio improved to 105 per cent in December 2013 from 98 per cent in September 2013 . Net provisioning charges Operating income in-line but weaker-than-expected loan growth. We view that strong and consistent growth in fee income is encouraging, while weaker than expected loan growth is a concern. Following a 22 per cent rally in the stock price in one month, we downgrade our recommendation on the stock from "Hold" to "Sell." We view that the recent price rally, combined with NIM pressure, little room for the cost of risk to decline from current levels, slower growth for GRE-lending, and rich valuations (1.7x 2014 P/B) justify our recommendation.
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