The bank cites the prevailing poor economic climate for the hike in provisions. ‘The economic downturn in those areas where the bank has operations or risk exposures – Europe, North America, the debt default by Argentina – also the Brazilian economy, the recession in Hong Kong and isolated loan loss provisions at Bahrain [contributed to the hike in provisions],’ says the bank in a statement.
ABC did launch an attempt to resolve its exposure to the depressed market in Hong Kong by attempting to sell its 55 per cent stake in International Bank of Asia. It is understood that the offer was launched towards the end of last year, but there were few signs that bids received were in line with ABC’s asking price. Banking sources say ABC had priced its stake at about 1.5 times the bank’s book value, which, based on IBA’s half-year interims, would be $350 million-400 million (MEED 3:1:03). ABC has stated its intention to use the proceeds of the sale to support the Arab world business operation.
ABC’s ongoing attempts to improve the geographical balance of its assets and liabilities and focus on the Arab world have accelerated. Units in Frankfurt and Milan are being rolled into ABC International Bank, the group’s London-based subsidiary. In addition, ABC closed its Los Angeles representative office last year.
High provisioning was not the only cause of ABC’s weak performance: other core parts of the business have also found the market difficult. Net interest income declined to $452 million from $469 million in the face of low interest rates and shrinking spreads. Non-interest income was marginally down at $292 million, despite concerted efforts to develop fee income streams.
Despite its difficulties, ABC’s balance sheet expanded rapidly over the year, with total assets ballooning to $29,313 million, up from $26,545 at the end of 2001. The main reason was the impact of a rapidly appreciating euro, which inflated the dollar valuations of the balance sheets of ABC’s European subsidiaries.
The bank has maintained its comparatively conservative lending profile with a year-end loans:deposits ratio of 66 per cent and a BIS capital adequacy ratio of 12.9 per cent.