This represents a 17% increase over the 2010 result. The last quarter of 2011 contributed $70.3 million to the overall result, as compared to $64.4 million in Q4/2010.
“AUB continued its solid performance in 2011 against the backdrop of a very challenging global business environment whose risks are continuing. Despite the geo-political developments in the MENA region and the Euro-zone crisis, AUB sustained its growth in operating income and net profit demonstrating its strong underlying fundamentals and importance of its diversified business model. I am cautiously optimistic that AUB is positioned to meet the emerging challenges arising out of evolving market conditions both in the region and globally and to maintain its positive performance into 2012,” Fahad Al-Rajaan, Chairman, AUB, said.
The year 2011 witnessed major geopolitical developments with associated economic ramifications ranging from declining consumer and business confidence, subdued lending demand and reduced client activity driven by market volatility, widening credit spreads and pro-active downward revisions in credit ratings of US and many Euro-zone countries. The advent of the Arab Spring added a regional dimension to the earlier evolving Euro-zone debt crisis and generally worsening macro-economic indicators globally.
Against the backdrop of a very challenging business environment, AUB pursued prudent liquidity build-up and capital preservation measures as its key priorities complemented by stringent cost controls to ensure its ability to effectively service its customers in providing necessary credit and other banking support under the most challenging conditions. Long term liquidity and funding profiles were augmented with the conclusion of the landmark deals with IFC/IFC Capitalization Funds in March 2011. These included raising $290 million through the issuance of Tier-1 Mandatorily Convertible Preference Shares of $125 million and a Tier-2 eligible 10-year subordinated term debt of $165 million. Moreover, existing subordinated term debt from IFC of $200 million was elongated to increase its capital effectiveness and eligibility. Overall customer deposits were increased by 16.9% (+$ 2.5 billion) to reach $ 17.3 billion, while the overall Interbank and Repo Borrowings decreased by $0.8 billion as part of a plan to reduce wholesale funding dependence.
Overall loans and advances rose by 7.0% to $15.5 billion (2010: $14.5 billion). As part of its liquidity management, additional liquid funds were deployed in Treasury bills and deposits with regional Central Banks and other high quality liquidity management instruments, which increased from $2.1 billion as at 31 December 2010 to $2.6 billion as at 31 December 2011. Total consolidated assets at 31 December 2011 stood at $28.3 billion, being 7.1% higher than their $26.5 billion level at 31 December 2010.
Credit quality levels were contained with a non-performing loans level of 2.5% (2010: 2.4%) as provision charge on loan losses declined by 14.4% to $ 129.8 million in 2011. Of the total loan loss provision charge made during the year, $79.1 million (61%) represents collective impairment provisions primarily undertaken to comply with regulatory provision requirements in different AUB markets and are not related to any specific counterparty impairments. The overall provision coverage ratio (including collective impairment provisions) increased to 135% as compared to 120% as of 31 December 2010.
The above stated measures resulted in an increase in the AUB Group’s operating income by 11.6% to $842.1 million over 2010, driven by an 11.4% increase in Net Interest Income. Associate banks in Qatar and Oman also contributed a 10% increase in profit share over 2010. Ongoing adoption of a disciplined and business driven cost spend culture within the AUB Group resulted in the cost income ratio improving to 32.4% (2010: 33.6%).
Return on Average Equity for the year stood at 12.7%, a significant increase over the 12% achieved in 2010. Return on Average Assets was maintained at 1.2% (2010: 1.2%) attributable essentially to investing in low yielding high quality securities and the maintenance of surplus liquidity levels as a contingency measure.
The resultant basic earnings per share were $6.2 cents for the year ended 31 December 2011 (2010: $5.4 cents). Given the landmark 2011 result for AUB, the Board of Directors recommends a cash dividend of $3 cents per share (2010: $2.5 cents) together with a bonus ordinary share issue of 5% (2010: nil) to augment share capital.