Arab Banking Corporation announces USD 120 million net profit for 2003

The Group's operating profit before provisions, tax and minority interests for 2003 totalled US$354 million, up 54% on the amount of US$230 million achieved in 2002. The Board of Directors have therefore decided to recommend a dividend of 7% to the Annual General Meeting.

ABC's earnings stream is clearly strong, despite the weak economic environment. Total revenues increased by 25% to US$898 million (2002: US$721 million). Net interest income was lower at US$437 million (2002: US$464 million) mainly because of the negative impact of continued low US dollar interest rates on earnings from equity funds. Commission, fees and other income surged 79% to US$461 million (2002: US$257 million) boosted by improved performance from the Brady bond portfolio, capital markets, retail banking, and treasury activities, and also benefiting from the strengthening of the euro against the dollar. The distribution of funded and non-funded income in 2003 was 49:51 (2002: 64:36).

Loan loss provisions amounted to US$133 million (2002: US$204 million), mainly because of the continued economic weakness in some of the regional economies and the United States, although the Investment Group subsidiaries in Spain and Hong Kong accounted for $59 million or 48% of the net total.

Operating expenses showed an increase of 11% to US$544 million (2002: US$491 million), mainly due to the translation effect from the surge in the euro/dollar exchange rate on Banco Atlántico's expenses incurred in euro and other non-recurring costs from staff redundancies in a few units. However, the overhead expense ratio improved slightly to 61% (2002: 68%), reflecting the stronger earning capacity of the Group's product platforms.

Total ABC Group assets increased by 4% to US$30,068 million (2002: US$28,915 million), mainly due to the foreign exchange translation impact of the strong euro on the assets of ABC's subsidiaries based in Europe. Loan assets grew by 6% to US$15,921 million (2002: US$14,981 million), holdings of marketable securities were increased by 6% to US$5,290 million (2002: US$5,005 million) whilst placements with other banks declined by 2% to US$6,651 million (2002: US$6,802 million).

ABC decided in 2003 to opt for early adoption of the revised version of International Accounting Standard 39 (IAS 39) - to which it already adheres - although the deadline for implementation is actually not until January, 2005. One of the main revisions requires the restatement at market value of originated loans that are quoted in an active market - previously these loans had to be stated at amortised cost. It therefore became necessary for what remained of ABC's 'Brady Bond' portfolio - the result of past sovereign debt reschedulings - to be 'marked to market' (that is, reflecting market values as they change), with the market value shortfall as of 1 January 2002 being recognised as a "transitional adjustment" as required by the revised IAS 39. Consequently, the consolidated equity as at 1 January 2002 and 31 December 2002 has been restated at $1,496 million and $1,371 million respectively (compared with $1,872 million and $1,766 million as stated previously). ABC's 'Brady Bond' portfolio was liquidated on 18 February 2004.

Consolidated equity as of 31 December 2003 stood at $1,585 million, and the Group's capital base remained strong, with a risk asset ratio of 14.7% at 31 December 2003 (2002: 13.1%), calculated in accordance with BIS guidelines applicable for international banks. Liquidity also remained strong with liquid assets to deposits ratio at 51% (2002: 54%) and loans to deposits ratio at 64% (2002: 65%).

In 2003 the Group reached an important milestone on its journey to position itself in accordance with its strategic vision. Despite ABC's success in growing both the businesses and profitability of International Bank of Asia Limited in Hong Kong and Banco Atlántico, S.A. in Spain over the years, its aim had always been to dispose of these investments if and when market conditions favoured it. That decision was now implemented in light of the emerging opportunities for expansion in the Arab world, particularly in the spheres of retail, Islamic banking, and consumer finance. Consequently, in September 2003, the sale of International Bank of Asia to Fubon Financial Holding & Co., Limited, a leading Taiwan group, was announced. After receiving the necessary regulatory approvals, this sale was completed on 16 February 2004. As for Banco Atlántico, following the assessment of a number of tenders from leading banks, in December 2003 ABC agreed to sell to Banco de Sabadell of Spain, with completion expected in the first quarter of 2004. These two disposals will substantially boost ABC's profits during 2004, to the benefit of the bank's shareholders.

The operations of all areas of the Group have remained under constant review with an eye to achieving optimal efficiency. Following the closure in 2002 of the Los Angeles representative office, rationalisation of the Group's US presence was effectively completed with the closure of the Houston representative office and transfer of its marketing responsibilities to ABC's New York branch. Likewise, a review of the business potential in South East Asia, given the Group's increasing Arab world emphasis, led to ABC's Singapore branch being replaced by a representative office. Asian business (principally trade finance) will henceforth be marketed and booked mainly by Bahrain business units. Finally, arrangements were completed in respect of the integration of the businesses of ABC's Frankfurt subsidiary and Milan branch into new branches of ABC International Bank plc, which was effected on 1 January 2004.

Mr. Ghazi M. Abdul-Jawad, President & Chief Executive said that "despite the weak economic environment, the low interest rate environment, and the reduction in business flow that followed the March 2003 Gulf War, ABC's operating result proves the soundness and resilience of the policies that the bank's Board and management have consistently followed."

"The disposal of our investments in International Bank of Asia and Banco Atlántico has enhanced our resources, which we plan to deploy in developing our regional presence in 2004 and the future. Building on the operational base that we have developed over the past few years with our retail presences in Algeria, Tunisia, Egypt, and Jordan, we will be seeking opportunities to expand within the region, particularly in Islamic, retail and consumer banking, to further enhance our existing pan-Arab presence."