Risk Performance Overview 2014

At ADCB, we are actively scanning macroeconomic conditions and readjusting policies and focus areas to ensure our portfolio remains robust. 2014 was a mixed year in terms of the economic climate — a buoyant beginning with the last six months characterised by several global challenges that will have an impact on business in the UAE in 2015. Global tension due to territorial disputes between Russia and Ukraine, China and Southeast Asia, and Syria and its neighbours has led to various concerted actions by the United Nations. The most significant of these tensions are the embargo of Russian financial institutions and its fuel exports, the war on extremists in the Middle East, the fall in oil prices, and the movement on the Abu Dhabi and Dubai stock exchanges.

We continue to upgrade our risk-management capabilities through expanded portfolio exposure reporting and analysis techniques, standardised stress tests, and assessments of ratings migration. Strict enforcement of discipline is also applied on the business side using tools such as RAROC (Risk Adjusted Return on Capital), economic capital computation and portfolio-level returns.

As a result of this continuing discipline, our loan portfolio grew rationally in 2014. Concentrations to the top 10 groups reduced as a proportion of the overall loan book. Sector concentration to real estate and construction reduced despite a healthy deal pipeline. The weighted average portfolio rating improved by one notch over 2013‘s average, and ADCB‘s capital adequacy ratio remains above the UAE Central Bank hurdle rate and is amongst the strongest in the country. Robust tools and disciplined credit actions will continue to form an integral part of the credit-decision and pricing process in 2015. We continue to monitor the impact of international and domestic challenges on our portfolio. Continued work on automation and information management will improve and quicken risk reporting to help ADCB prepare for the anticipated Basel III requirements, which the Central Bank of the UAE may implement in the future.

ADCB is also investing to upgrade our risk infrastructure and has embarked on projects such as the digitisation of credit approvals and the upgrade of limit- and collateral-management systems to ensure that our risk management practices remain best in class.

In 2014, fraud risk management was centralised under the Group Risk function, and there are several enhanced fraud-monitoring controls in place. The year also saw focus on compliance-related actions to ensure we are fully compliant with Foreign Account Tax Compliance Act (FATCA) requirements.

A joint project with business was concluded to revisit risk policies and align them with changing market conditions and the macroeconomic climate.