National Bank of Fujairah announces 2008 full year results

Highlights:

• Core operating income up 33.4% following continued core business focus
• Total assets stand at Dhs12.8bn
• Financial stability underpinned by increase in capital adequacy (Basel I) and advance to deposit ratios of 17.8% and 86.4% respectively
• Provision policy for specific provision was brought forward 90 days and a collective impairment provision of Dhs45m was secured in deteriorative credit conditions
• Investment portfolio fair value decreased by Dhs250m, as a result of global market downturn, Dhs227m recognized in the profit and loss with portfolio significantly reduced for the coming year
• Loss of Dhs50.3m [2007: Dhs323.8m profit] as a result of prudent loan loss provisioning for the coming year and investment fair value losses

H.E. Sir Easa Saleh Al Gurg, Deputy Chairman, commented:

"Whilst the Bank has seen excellent income growth in 2008 across all its core businesses, global market conditions had a significant effect on the value of the Bank's investment portfolio. In response to continued uncertainty over macro economic conditions in the coming year, the Bank has significantly reduced its exposure to market volatility. Current market conditions also necessitate a prudent approach to potential loan loss provision and NBF has been cautious in this regard. These measures together with a continued focus on core business and enhanced risk management will ensure that the Bank is financially strong and well placed to achieve continued and stable growth in the coming year."

Deputy Chairman's Statement:

The Bank achieved strong growth across all its core businesses, yielding a 33.4% increase in core operating income and growth in total assets to Dhs12.8bn. Whilst market conditions remained competitive and margins continued to come under pressure, volume of sales grew steadily. This contributed to a 28.7% increase in net interest income and a 34.3% growth in fee income.

The Wholesale Banking division continued to progress strongly with excellent performance across corporate, commercial and financial institutions businesses resulting in a 32.8% growth in operating income for the division.

The Fujairah region business delivered record growth across both retail and commercial operations, giving rise to a 48.6% increase in operating income. Similarly, the Treasury division produced record growth, with foreign exchange income doubling as a result of focused sales, demonstrating the increasing importance of the division to the Bank's product offering.

A continued emphasis on the importance of effective asset and liability management strengthened both advance/deposit ratio and capital adequacy (Basel I) ratios to 86.4% and 17.8% respectively. The Bank also secured an increase in available funding, with a new syndicated loan facility of $210m equivalent, a $80m increase on the previous facility, and subordinated debt issuance of Dhs400m. These measures combined to enable the Bank to effectively manage liquidity in the face of difficult market conditions.

NBF believes that conditions in the sector will continue to remain challenging in the short term, particularly in the credit market. The Bank's specific provisioning policy was changed to reflect this, from the regulatory requirement of 180 days to 90 days. The decision was also taken to further increase collective impairment provisions by Dhs45m.

Despite the strength of the underlying core business, the Bank was not immune to the effects of the global market downturn. As a result, the value of NBF's investment portfolio decreased by Dhs250m of which Dhs227m has been recognized in profit and loss and the remainder in equity [2007: Dhs70.3m profit]. Over 60% of this arose from investments in Managed Funds, the remainder being from the Bank's investments in Bonds. The Bank has significantly reduced its fund based portfolio. The Board remains confident however that given the uncertainty regarding macro-economic conditions in the short to mid term that a reduction in the Bank's exposure to these products was prudent. This fall in value has been fully recognized in the profit and loss, highlighting both NBF's commitment to transparency and close focus on financial stability.

The Bank invested heavily over the course of the year in infrastructure and in strengthening human capital, and as a result operating expenses increased by 25%. Despite this increase, cost to income ratios [excluding fair value loss on investments] improved to 34% from 36% in the corresponding year in line with management expectations.

The Board is confident that, despite the difficulties faced over the past year, continued focus on core operations, risk management and financial stability will ensure that the Bank is well positioned to grow in the coming year.