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Study Of Financial Ratio Of Two Banks Finance Essay

We in this write-up are going to study two major banks of Abu Dhabi. We are going to do Comparative Analysis of two Banks NABD and ADCB. Main criteria through which we are going to judge the banks are financial ratio calculated based on after analysis of annual and quarterly financial statements of these two banks.

Introduction

Abu Dhabi Commercial Bank (ADCB) represents a public sector joint stock company having limited liability incorporated at Emirate of Abu Dhabi, the United Arab Emirates. Abu Dhabi Commercial Bank got its name changed from Khalij Commercial Bank to ADCB after getting merged with two firms. Two of those banks were Emirates Commercial Bank & Federal Commercial Bank. This merger happened in 1985. ADCB has a large number of banking modes including retail banking, investment banking, commercial banking, brokerage, merchant banking and last but not the least asset management activities throughout its entire network of various branches which are forty two in number present at the United Arab Emirates and with two of its branches present in India. (Key Ratios)

National Bank of Abu Dhabi, which is also known as NBAD, was incorporated in 1968 in order to serve as a banker to the government of United Arab Emirates and the government of emirate of Abu Dhabi. It, till 1975, has also worked as a Central Bank for United Arab Emirates until formation of national currency board has not taken place. (NBAD among World’s 50 Safest Banks for 2nd Consecutive Year, 2010) National Bank of Abu Dhabi is structured into three businesses which are extensively client-focused. These three businesses include the United Arab Emirates Domestic bank, the United Arab Emirates International business and last but not the least United Arab Emirates based Investment bank. National Bank of Abu Dhabi have a retail customer base which is further segmented into three parts- Retail customer, Elite customer and customers related with Private banking. The above mentioned International Banking Division usually manages NBAD’s major Overseas Branch Network spread all over the world .It also manages Financial Institutions Group and Abu Dhabi International Group and manages 23 overseas units spreading from Oman to Bahrain in the GCC, then to Cairo and Khartoum of Africa, and to Europe’s London and Paris and to U.S.A’s Washington D.C. One of the wholly owned subsidiaries of NBAD is Abu Dhabi Financial Services LLC. It has a domain of providing local and foreign equities brokerage services. This is in addition to its operation of managing initial public offerings and commodities trading. Abu Dhabi Financial Services LLC is currently one of the largest share brokerage operating in the UAE.

Ratio Analysis

Financial ratio which is also known as accounting ratio is a ratio telling relative magnitude of division of two numerical values usually taken from a firm’s financial statements. It is generally used in for acc, there accounting purposes. There is variety of standard ratios used to explain the comprehensive financial position of a corporation or an organization. Financial ratios can be used by inside managers to use the company’s financial status and define the plan on which they have to make the company improve its financial efficiencies. These ratios can be utilized by outsiders such as investors to analyze the company’s economic position to check out whether they can invest in the firm or not. By analyzing the ratio, investors can fully verify whether company’s stock price is logical or not. Whether they are fundamentally correct not? Security analysts generally use financial ratios to analyze the strength and weaknesses of various companies. (Key Ratios)

Financial ratios generally quantify many quality aspects of a business. They are usually an integral part analysis of the financial statement. Financial ratios get categorized as per the financial act which ratio measures. They are grouped together in different categories each informing different aspects of the company. Liquidity ratios generally measure the presence of cash available to pay debt. Activity ratios generally measure that how quickly a firm is able to convert its non-cash assets into cash assets. Debt ratios generally measure the capability of firm to repay its long-term debt pending. Profitability ratios basically measure the utility of firm's assets and control of its total expenses to generate an permissible rate of return. Market ratios basically measure investor’s response of owning a company's stock. It also checks the cost of issuing stock. (CICEA & HINCU, 2009) These ratios are usually analyzed with company’s ability to return the amount invested or actually just the return on equity. The relationship gets formed between return investor can assume and the kind of value of an investment associated with company’s shares.

Financial ratios facilitate for comparisons

between different companies

between different industries

between different time horizons for one company

between a company with its industry average

Ratios generally don’t have any significance until they are related and compared with something else. Therefore they form the main basis of comparative analysis of two firm’s financial and operational status.

UAE Banking Industry

Common thing about most of the banks of UAE is that they have Islamic banking in common. They are different from other types of traditional banking in many different ways. Traditional banking and finance involved money making activities by utilizing different opportunities and exploiting resources to earn maximum profit. The Islamic banking and financial institutions don’t operate according to traditional banking principles. The Islamic institutions involve principle of Sharia and try protecting benefits of common people. They tend to provide 0% interest loans and several financial instruments that can make to favoring to business growth.

Islamic banking and finance depends upon the principles of Sharia that defines several ideas of marketing. It is Islamic religious reference that is applied to the real world by the Islamic banks. These financial institutions are responsible for successful implementation of these principles. They try to provide 0% interest lending to establish business and trading. Sharia also opposes the monopoly of any business and so don’t allow any type of patent or copyrights that can protect any products or services. Islamic financial institutions deal in providing best opportunities for the person interested in trade expansion. Sharia also protects ownership of business and ownership only belongs to one who invests capital and effort both. According to the Sharia, the corporate takeover is not allowed and any type of acquisition or merger cannot be entertained.

The objectives of the Islamic banks in particular in UAE have been mentioned as follows:

The foremost objective of the Islamic banks is to make the world free from economic injustice.

They believe in a different convention as compared to the non-Islamic banks in the country and worldwide.

It is one of the most ethical forms of banking even though it might appear a lot more exotic in the beginning.

They are committed to Islamic ideals and rules of Sharia in almost all their activities.

They are focused on 100% customer satisfaction. They deliver quality service as per the customer needs.

They aspire to become a Bank that makes their employees feel proud and are willing [1] to offer a chance to learn and advance on merits.

They use creativity and technology to differentiate between their services. Try to make their products and services easily accessible to their customers.

They will reward their shareholders by providing them competitive returns on their investment in the Bank.

The banks aim at charging 0% interest rates as it is a sin in Islam.

It is clearly observable that the financial institutions of UAE & other Islamic countries are making huge return from their services offered.

Islamic banking is growing rapidly with 10-15% growth rate every year. It has spread in whole world with 300 institutions in 51 countries including United States, with 250 mutual funds running on the principles of Islamic ideas.

Global Financial Crisis and Banks

ADCB

The wide spread subprime crisis led global financial crisis has made ADCB to have substantial increase in its non-performing loans (NPLs) which is also spread across the banking sector including some other private sector in the UAE. ADCB’s usual asset quality ratios has weakened majorly in 2009, which has happened partly because of the following reasons:

The classification of exposures to two major Saudi-based business conglomerates has taken place. These business conglomerates have defaulted in 2007.

Secondly due to higher Non-Performing Loans in domestic retail and major corporate loan portfolios. Also, the NPL’s provision coverage ratio had fell substantially in last year but it has improved in the very first six months of 2010.

Then, bank has taken measures and therefore NPL classifications had slightly slowed in 2008 and over and above that Bank’s large capital base has provided additional cover.

NBAD

This challenging environment global financial crisis has made banks to take more cautious standings to their pricing and ongoing control and credit assessment in the financial industry. Pace of loan growth has witnessed in only first half of 2008, and then it slowed rapidly after second half of 2008. NBAD management believes this downward sloping trend will keep continuing in 2009. Despite all these developments which has taken in operating environment, NBAD Bank’s liquidity position has remained strong because of the result of continuing Sovereign support and vast diversity of financial institutional funding sources available across tenors, counterparties and geographies.

Assumed Hypothesis for Study

Here in this study we are assuming a null hypothesis that NBAD has taken better measures than ABDC during financial crisis to make it itself efficient, robust and risk free. We are starting the study assuming that NBAD will perform better in 2008-10 period when compared with ABDC. This also constitutes our alternate hypothesis that ADCB has better managed the global financial crisis and therefore will perform better than NBAD in 2008-10 periods.

ADCB

Introduction

Abu Dhabi Commercial Bank (ADCB) is listed in Abu Dhabi Securities Exchange which makes this bank to be got traded in primary and secondary market. The official sector to which Abu Dhabi Commercial Bank (ADCB) belongs is BANKS AND FINANCIL SERVICES to which other 15 companies which constitutes this sector are involved. Market Capital size category to which ADCB bank belongs is Large-Cap to which only 7 other companies belong. Ownership structure

 

Stock quotes of ADCB are around 2.69 Arab Emirate Dirham. Volume of ADCB shares in the market is approximately around 1,608,508. Fifty day Average volume of ADCB in Abu Dhabi Stock Exchange is around 2,112,120. Average outstanding shares floating in the market is around the market is 4,810,000,000.Market Capitalization of the whole company in UAE market is around 12,938,900,000 Arab Emirate Dirham (AED). (Abu Dhabi Commercial Bank - ADCB: Financial Highlights)

Balance Sheet

2010

2009

2008

Income Statement

2010

2009

2008

Key Financials

Annual:

Following table shows the key financials of the company which are used for the calculation of the firm’s financial ratios. First field which is Total operating income shows how much the company’s income is because of the operating procedures. It gets improved with the improvement in the operating efficiencies of the company. Second ratio shows the profitability of the company which by its numerical value we can say that it got reduced as compared to previous years as five year growth rate is negative. Company therefore is running in less profitable time. Total asset of the firm got increased by around 11.27% which shows company’s continuous pursuits to enhance the asset value. Company’s investment has reduced in recent time which can be said by observation of its investments. Cash flow have increased recently as compared to previous year.

Yearly

 

As of 31/12/2010

YTY Change (%)

5- Year Growth (%)

Total Operating Income (AED '000)

5,335,900

11.56

15.03

Net Profit (AED '000)

381,001

N/A

-27.58

Total Assets (AED '000)

178,271,194

11.27

25.3

Owners Equity (AED '000)

19,564,787

2.86

17.84

Investments (AED '000)

13,910,529

-3.79

45.08

Cash Flow From Operating Activities (AED '000)

8,937,578

345.06

N/A

Following ratios shows that company’s made investors to earn 0.08 per share. Net profit margin shows that profitability is increasing year on year. It is proven by the fact that there is 18% increase in the net profit margin as compared to last year. Return on asset shows the utility and efficiency of the asset used in making company’s profit. This is 0.21 which is an improvement as compared to previous year and also when is compared with five years back data. Return on equity shows company’s return on the equity or on the amount invested by the owners of the firm. This is also improved as compared with previous year as well as when it is compared with the five year back dated data. Equity as a percentage of assets has been slightly decreased which shows that the company’s ownership value is decreased in total asset or we can say that company’s debt ratio has been increased in the total as debt amount is increasing and the equity amount is decreasing at the same time. But good thing is that when it is company’s 5 year old ownership pattern, it has improved a lot in terms of equity percentage in total asset of the company. (Abu Dhabi Commercial Bank: ANNUAL REPORT 2009, 2010)

 

As of 31/12/2010

YTY Change (%)

5- Year Average (%)

EPS (AED)

0.08

N/A

1.46

Dividends (AED)

N/A

N/A

0.6

Payout Ratio

N/A

N/A

41.21

Net Profit Margin (%)

7.14

18.84

29.26

Return On Assets (%)

0.21

0.56

0.96

Return On Equity (%)

1.95

4.89

8.29

Equity/Assets (%)

10.97

-0.9

11.61

Leverage (%)

811.14

69.23

761.09

Following table Shows Company’s other financial parameter on which we can utilize to analyze the performance of the company. The first factor which is there in the table is beta value. It shows that company’s response to the market fluctuation. Value one of beta shows that company’s stock price variation is directly proportional to overall market index. Value 1.31 shows that company stock price are very much responsive to the market index and if market indices rise by one percent, company’s stock price will rise by 1.31%. P/E ratio shows that the ratio of current price of stocks of the firm with the earning company is able to produce. Value 33.96 shows that company’s share price are 33.96 times the earning company is able to produce per share. Price by revenue ratio shows the ratio of company’s stock price with the company’s revenue is able to generate per share. It is 2.42 times at present. Company’s price by book value shows that company share price to Book value of assets per share.

Beta

1.31

Current P/E

33.96

Price / Revenue

2.42

Price / Book Value

0.66

Price / Cash Flow

26.42

Quarterly:

Quarterly

 

 

 

As of 31/12/2010

12-month Growth (%)

Total Operating Income* (AED '000)

5,335,900

11.56

Net Profit* (AED '000)

381,001

168.1

EPS* (AED)

0.08

168.1

Total Assets (AED '000)

178,271,194

11.27

Owner's Equity (AED '000)

19,564,787

2.86

Net Profit Margin (%)*

7.14

18.84

* Trailing Twelve Months

 

 

NBAD

Introduction

National Bank of Abu Dhabi (NBAD) is listed in Abu Dhabi Securities Exchange which makes this bank to be got traded in primary and secondary market. The official sector to which National Bank of Abu Dhabi (NBAD) belongs is BANKS AND FINANCIL SERVICES to which other 15 companies which constitutes this sector are involved. Market Capital size category to which NBAD bank belongs is Large-Cap to which only 7 other companies belong.

Stock quotes of National Bank of Abu Dhabi (NBAD) are around 11.5 Arab Emirate Dirham. Volume of National Bank of Abu Dhabi (NBAD) shares in the market is approximately around 413,646. Fifty day Average volume of National Bank of Abu Dhabi (NBAD) in Abu Dhabi Stock Exchange is around 411,715. Average outstanding shares floating in the market is around the market is 2,391,703,000. Market Capitalization of the whole company National Bank of Abu Dhabi (NBAD) in UAE market is around 27,504,480,000 Arab Emirate Dirham (AED). (National Bank of Abu Dhabi - NBAD: Financial Highlights)

Income Statement

2010

2009

2008

Balance Sheet

2010

2009

2008

Key Financials

Annual:

Following table shows the key financials of the company which are used for the calculation of the firm’s financial ratios. First field which is Total operating income shows how much the company’s income is because of the operating procedures. It gets improved with the improvement in the operating efficiencies of the company. Second ratio shows the profitability of the company which by its numerical value we can say that it got reduced as compared to previous years as five year growth rate is negative. Company therefore is running in less profitable time. Total asset of the firm got increased by around 7.23% which shows company’s continuous pursuits to enhance the asset value. Company’s investment has reduced in recent time which can be said by observation of its investments. Cash flow has decreased recently as compared to previous year.

Yearly

 

 

 

 

As of 31/12/2010

YTY Change (%)

5- Year Growth (%)

Total Operating Income (AED '000)

7,178,534

12.18

16.04

Net Profit (AED '000)

3,683,159

21.96

7.38

Total Assets (AED '000)

211,427,270

7.43

20

Owners Equity (AED '000)

24,113,416

17.97

26.91

Investments (AED '000)

21,396,005

12.88

16.88

Cash Flow From Operating Activities (AED '000)

-4,656,128

N/A

N/A

Following ratios shows that company’s made investors to earn 1.54 per share. Net profit margin shows that profitability is increasing year on year. It is proven by the fact that there is 5% increase in the net profit margin as compared to last year. Return on asset shows the utility and efficiency of the asset used in making company’s profit. This is 1.74 which is an improvement as compared to previous year and also when is compared with five years back data. Return on equity shows company’s return on the equity or on the amount invested by the owners of the firm. This is also improved as compared with previous year as well as when it is compared with the five year back dated data. Equity as a percentage of assets has been slightly decreased which shows that the company’s ownership value is decreased in total asset or we can say that company’s debt ratio has been increased in the total as debt amount is increasing and the equity amount is decreasing at the same time. But good thing is that when it is company’s 5 year old ownership pattern, it has improved a lot in terms of equity percentage in total asset of the company. Only big difference which is available and can be verified in the table data is the big change in leverage structure. Company has reduced its leverage by 86% as compared to previous year which shows that company has get rid of the debt which company has till last year up to large extent. This will improve company’s profitability as company will have to pay lesser debt interest but it will create some problem also. It will make companies to give more money as part of tax as it will remove the tax shield also to a great extent.

 

As of 31/12/2010

YTY Change (%)

5- Year Average (%)

EPS (AED)

1.54

21.96

7.07

Dividends (AED)

N/A

N/A

0.96

Payout Ratio

N/A

N/A

13.62

Net Profit Margin (%)

51.31

4.11

58.5

Return On Assets (%)

1.74

0.21

1.88

Return On Equity (%)

15.27

0.5

19.56

Equity/Assets (%)

11.41

1.02

9.62

Leverage (%)

776.8

-86.02

938.99

Following table Shows Company’s other financial parameter on which we can utilize to analyze the performance of the company. The first factor which is there in the table is beta value. It shows that company’s response to the market fluctuation. (Abu Dhabi Commercial Bank: ANNUAL REPORT 2009, 2010) Value one of beta shows that company’s stock price variation is directly proportional to overall market index. Value 1.24 shows that company stock price are very much responsive to the market index and if market indices rise by one percent, company’s stock price will rise by 1.24%. P/E ratio shows that the ratio of current price of stocks of the firm with the earning company is able to produce. Value 7.68 shows that company’s share price are 7.68 times the earning company is able to produce per share. Price by revenue ratio shows the ratio of company’s stock price with the company’s revenue is able to generate per share. It is 3.83 percent at present. Company’s price by book value shows that company share price to Book value of assets per share. Dividend yield is also pegged at 2.61 which is a good sign if we see the company’s financials.

Beta

1.24

Current P/E

7.68

Price / Revenue

3.83

Price / Book Value

1.14

Price / Cash Flow

7.23

Dividend yield

2.61

Quarterly:

Quarterly

 

 

 

As of 31/12/2010

12-month Growth (%)

Total Operating Income* (AED '000)

7,178,534

12.18

Net Profit* (AED '000)

3,683,159

21.96

EPS* (AED)

1.54

21.96

Total Assets (AED '000)

211,427,270

7.43

Owner's Equity (AED '000)

24,113,416

17.97

Net Profit Margin (%)*

51.31

4.11

* Trailing Twelve Months

Inferences

By analysis of recent financials we can conclude that NBAD has 12-Month Fair Value amounted to total of AED 12.40. It belongs to risk level Risk Level 2 companies where 1 is the highest score. NBAD (National Bank of Abu Dhabi) is found to have a net profit of around AED 927 million in first quarter of 2011, which is calculated to be 10% below first quarter profit of year 2010 but the net profit is around 27% above quarter four of 2010, which was one of the weakest quarter in financial year 2010 if we talk in terms of accumulated net profit. If we talk in annual terms, it has a year-over-year (YoY) fall in net profit. It was mainly due to keeping higher provision charges and over and above that, higher operating costs in quarter one of 2011. Total operating income have already reached a record high of United Arab Emirates Dirham(AED) of 1.88 billion in first quarter of 2011, which is 6% above first quarter of 2010 and is also in-line with forecast of major investment analysis firms.

Net interest income of NBAD bank has stood at United Arab Emirates Dirham (AED) of 1.38 billion in first quarter of 2011, 11% above first quarter interest income of 2010, but the interest income is almost flat when it is compared to quarter four of 2010. Additionally, Fee and commission income of NBAD bank grew by around 6% year on year which made it to reach United Arab Emirates Dirham(AED) of 344 million in first quarter of 2011. If we talk about Foreign exchange income, it got reduced by around 12% year on year, and it is reduced to more than half compared to record high income which was achieved in quarter four of 2010. The Total costs of the firm got increased by around 15% year on year, but it got declined by around 10% quarter-on-quarter. The NBAD bank’s total cost-to-income ratio remain fixed at around 30% in quarter first of 2011 when it is compared with financial year of 2010.

• The Net provision charges which was expected to be high were up to the expectation, at United Arab Emirates Dirham (AED) of 365 million in first quarter of 2011, which was 62% higher than first quarter of 2010, but it is around 14% lower then quarter four of 2010. As was the expectations, National Bank of Abu Dhabi (NBAD)’s asset quality indicators got extremely weakened in first quarter of 2011. The non-performing loans (NPLs) have got enhanced by positive double-digits (+16%) again. It is for the fourth consecutive quarter repetition. It stood at around United Arab Emirates Dirham (AED) 3.78 billion calculated as on March 2011. By the end of the March of 2011, Non-performing loans started representing around 2.56% of the gross loans, which when compared with previous quarter, it is only 2.31% as of December 2010. Over and above, Non-performing loans Coverage has dropped to around 105% as of March 2011, which is at the lowest level ever seen since third quarter of 2007. If it is compared to December 2010 coverage of 113%, it is very low.

• If we discuss about Loan growth which was stronger and higher than what was expected, it stood at around 4.7% in first quarter of 2011. This is highest quarterly loan growth ever since second quarter of 2009. If we talk about Net loans, it has reached to a record high of United Arab Emirates Dirham (AED) of 143.2 billion calculated as on March 2011. Considering Deposits, it grows stronger than expected at a rate of around 14.6% in first quarter of 2011. The deposits also approached to a record high of United Arab Emirates Dirham (AED) 141 billion, it also made the NBAD’s loans-to-deposits ratio fall to around 102% as on Mar 2011, compared with high of 111% as of Dec 2010.

• National Bank of Abu Dhabi has recently given really very good results enforced by strong operating income recently which was as per expectation of most of the analysts. The firm has achieved higher than expected balance sheet growth. Still the ever increasing list of Non-performing loans are still an issue and which demands a suggestion National Bank of Abu Dhabi should improve their asset’s income generating efficiency. National Bank of Abu Dhabi (NBAD)’s share price rose by around 17% in since recent times which shows that investors can have a faith on bank’s capability to generate money for them.

Comparative Analysis

Comparative analysis of two companies for a period 2008-10

 

NBAD

NBAD

NBAD

ADCB

ADCB

ADCB

 

2008

2009

2010

2008

2009

2010

Equity

14356599000

20440568000

24113416000

14356599000

19021032000

19564787000

Total Asset

164654480000

196807016000

211427270000

164654280000

160208708000

178271194000

Net Income

3018735000

3019937000

3683159000

3018735000

-512799000

390615000

Net Interest Income

3607565000

4441533000

5017613000

7331109000

3406119000

3868474000

Non-Interest Income

1693717000

1957519000

2160921000

-2029827000

1376687000

1467426000

Non-Interest Expense

81640000

198705000

168051000

81640000

5292374000

4936053000

Operating Income

5301282000

6399052000

7178534000

5301282000

4782806000

5335900000

Outstanding Shares

1960217532

1960217532

1960217532

37734187500

37734187500

37734187500

 

 

 

 

 

 

 

 

 

 

 

 

 

 

ROE

21.0%

14.8%

15.3%

15.4%

-2.7%

2.0%

ROA

1.8%

1.5%

1.7%

1.8%

-0.3%

0.2%

NIM

2.2%

2.3%

2.4%

4.5%

2.1%

2.2%

Efficiency Ratio

1.5%

3.1%

2.3%

1.5%

110.7%

92.5%

Fee Income Ratio

31.9%

30.6%

30.1%

-38.3%

28.8%

27.5%

EPS

1.54

1.540613198

1.878954218

0.08

-0.013589772

0.010351753

NPM

56.9%

47.2%

51.3%

56.9%

-10.7%

7.3%

AU

3.2%

3.3%

3.4%

3.2%

3.0%

3.0%

EM

11.46890569

9.628255731

8.768034774

8.41584833

8.422713762

9.111839245

Significance of ratios and their formulas

ROE

(return on equity) = net income / average common equity.

ROA

(return on assets) = net income / average total assets.

NIM

(net interest margin) = net interest income / average total assets.

Efficiency Ratio

Efficiency ratio = noninterest expense / ( net interest income + noninterest income)

Fee Income Ratio

Fee income ratio = noninterest income / (net interest income + noninterest income)

EPS

(earnings per share) = net income / # of outstanding shares

NPM

(net profit margin) = net income / total operating revenues

AU

(Asset Utilization) = total operating revenues / average total assets

EM

(Equity Multiplier) = total assets / common equity

If we do the comparative analysis of these two major banks for the period 2007-10, we can say that National Bank of Abu Dhabi (NBAD) is in far better position as compared to Abu Dhabi Commercial Banks (ADCB). Whether this is due to nation representing image of NBAD or whether it is because of the poor management of ABDC bank: that is not getting cleared from data. But surely this is either of these two reasons which are creating so much of difference between to banks. First if we talk in terms of return on Equity or ROE we can say that NBAD is giving far better. NBAD’s average ROE is around 17% whereas ADCB bank has 3% which has changed this year to become a decent 15%. If we talk about return on asset ROA, here also NBAD has been far superior as compared to ADBC historically but recently both have somewhat similar ROA. The value of ROA of NBAD is around 1.8% whereas avg. ROA of ABDC bank is around 0.6% though it improved a lot recently. This shows the continuously pursued better efficiency and better productivity associated with NBAD bank which is able to provide better returns to investors. If we take into consideration the net interest margin NIM, here we can say that ADBC is superior to NBAD presently. The value of NIM associated with ADCB is around twice as compared to the NBAD bank in 2010 though they had similar level in 2009 and 2008. If we talk about efficiency ratio, we can say that the efficiency of NBAD is more than ADCB bank by a huge margin. NBAD is spending lesser on noninterest expense as compared to ADCB though gap has been shortened recently. If we talk about the fee Income ratio, here also NBAD is far better as compared to ADCB. The main reason for that is the low profitability of ADCB bank when it is compared to NBAD bank which made ADCB’s fee Income ratio negative. Considering Earning per share of both the banks, we can say that NBAD’s EPS is around 20 times that of ADCB. This shows the amount of wealth creation NBAD is doing for investors whereas ADCB investors are continuously bearing losses. If we analyze NPM ratio (Net profit margin), here we can say that surprisingly NBAD’s NPM is exactly equal to ACDB. The numerical value of NPM ratio of NBAD is same that of ADCB though historically NBAD was superior on this aspect. This shows that NBAD has more net income for the same operating revenue when it is compared with ADCB. If we talk about asset utilization AU of both the banks, we can again say that NBAD is at par with ADCB. Both the firms are similar on this aspect in all 3 years under consideration. Equity Multiplier, if compared for both of the banks, we can say that NBAD’s value (avg 10) is slightly better than ADCB’s (avg 9).

Findings

Findings from the above comparative analysis are that National Bank of Abu Dhabi is financial lesser risky when compared to its peer bank Abu Dhabi Commercial Bank historically though later has filled the gap recently in 2010. National Bank of Abu Dhabi is far more productive, far more efficient and far better managed when compared to Abu Dhabi commercial Bank in 2008-2010 periods. In most of the criteria, NBAD has proved its mettle over ADCB if efficiency and profitability is taken as a parameter. NBAD has been consistent in its performance and its relatively untouched by the financial crisis of 2008.

Recommendations

Now seeing the result obtained from comparative analysis we can say that, ADCB need to keep improving each of its field whether it is operational efficiency or whether it is amount of Non-performing loans as it has done in 2010-11 financial year. The main measures which ADCB should be taking are the followings:

Reduce the Non-performing loan amount

Increase the Non-performing Loan Coverage.

Improve operational efficiency by reducing the operation cost and by increasing the productivity per employee. Suitable HR measures should be taken to enhance employee engagement and to recruit better work force for better management.

Be profitable and make investors profitable by improving Earnings per share. This will regain investor’s faith and therefore the stock price upward movement.

Increase Customer deposits by attractive rate offerings and adding innovative features to the depositary accounts.

Take measures to improve and enhance Interest income.

Reduce the non-interest expense and therefore the efficiency.

As per the comparative analysis, even NBAD should be working on the first two point to improve its Net Interest Income as it lags even behind ADCB.

Conclusion

Above study can be concluded with the conclusion that NBAD is better when it is compared with ADCB on a 3 years financial basis. This also proved our null hypothesis that NBAD has better managed its resources to make itself better prone to global financial crisis as it has been consistently booking profit without much affect of Global financial crisis. Still ACDB has improved a lot recently and has the possibility of improving itself further though some makeover in its operational procedure and has to take some strict action to some key problematic areas. The ADCB has a big brand name and it has opened its centers in India which can help it to achieve its objective as diversification helps in getting economy of scale and economy of scope.

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