Good afternoon, everyone, welcome to the UBS Abu Dhabi Commercial Bank Q2 2026 earnings call. If you wish to participate in Q&A, please use the raise hand button in the middle of the bottom of your Zoom screen. I will now hand over to our UBS host, John Peace.
Thank you, good afternoon, everybody. Welcome to ADCB's second quarter 2026 results call. My name is John Peace, I am Head of MENA Research at UBS. Before we start, I would like to read a disclaimer. This webcast is for analysts and investors only, any media personnel are requested to drop off. This call may be recorded, by participating in this call, you agree that the recording of your participation may be made publicly available for replay purposes.
For further information, please see the disclaimers issued in the event email confirmation from UBS. At the end of the management presentation, the operator will give instructions on how to take questions. Please limit your questions to two per person to give time. Any unanswered questions can be directed to investor relations. I will now hand the call over to Harsh Vardhan, Senior Head of Investor Relations. Harsh, over to you.
Thank you, John, good day, ladies and gentlemen. Welcome to ADCB's call on our second quarter 2026 financial results. We will be referring to the earnings presentation available on our investor relations website. I am joined today by Deepak Khullar, Group Chief Financial Officer, Robbert Muller, Group Treasurer, and Dr. Monica Malik, our Chief Economist. We will discuss the key financial highlights, as well as the operating environment and guidance before opening the floor for questions. With that, I will now hand over to Deepak to begin on slide five.
Thank you, Harsh, good afternoon, everyone. ADCB delivered an excellent first half performance reflecting the strength of the franchise, the resilience of the UAE economy, and the disciplined execution of our five-year strategy. Against a backdrop of sustained economic momentum in the UAE, we continue to generate broad-based growth across our businesses while maintaining strong risk discipline.
This resilience is evident across multiple dimensions, from corporate lending and customer acquisition to revenue diversification and efficiency gains. Quarter two profit before tax increased 26% year-on-year to a record AED 3.83 billion, marking the bank's 20th consecutive quarter of profit growth, an unbroken run that stretches back to 2021. Half one profit before tax increased 28% year-on-year to AED 7.61 billion, demonstrating the consistency of our earnings trajectory and the strength of our business model.
Net profit after tax reached AED 3.38 billion in the second quarter and AED 6.74 billion in the first half, delivering a half one return on average equity of 16.2%. Non-interest income remained a key driver of performance, increasing 22% year-on-year in the first half, supported by higher fee and trading income. This reflects the continued diversification of our earnings profile.
Additionally, cost-to-income ratio improved by 90 basis points year-on-year to 26.8% in the first half, reflecting double-digit top-line growth combined with disciplined cost management. Balance sheet momentum remains strong.
Net loans increased by AED 42 billion or 10% during the first half, with growth across a diverse range of economic sectors. Customer deposits increased by AED 27 billion or 5% year-to-date, underscoring the depth of our client relationships and franchise strength. This growth continues to be characterized by strong asset quality metrics.
Cost of risk improved to 38 basis points in the first half, remaining comfortably below our through the cycle guidance range. ADCB remains in a robust financial position with a CET1 ratio of 13.66% and a liquidity coverage ratio of 109.5% at June-end. On slide six and seven, you will see key income statement details for the first half and second quarter.
Operating income increased 12% year-on-year to AED 11.98 billion in the first half, with particularly strong momentum in non-interest income. This not only reflects robust revenue growth, but also the continued diversification of our earnings profile with a broader mix of income streams. Operating profit before impairment charge increased 13% year-on-year to AED 8.77 billion in the first half and rose 3% year-on-year to AED 4.36 billion in quarter two. The consistency of these outcomes is important.
This is not a franchise that has simply delivered a strong quarter, but one that continues to compound. The combination of sustained business growth, improving profitability, strong returns, and disciplined risk management gives us confidence in the durability of our earnings and our ability to continue creating long-term shareholder value.
Turning to slide eight and a more detailed look at net interest income. Which increased 6% year-on-year in the first half to AED 7.47 billion. This was driven by significantly higher volumes and disciplined pricing, despite a lower interest rate environment following three benchmark rate cuts in September 2025. In the second quarter, net interest income was AED 3.73 billion, broadly stable quarter-on-quarter, and 2% higher year-on-year.
As expected, NIM moderated to 2.26% in the first half and 2.2% in quarter two, reflecting the lower rate environment and a shift in liability mix to maintain a resilient liquidity position. Notably, risk-adjusted NIM increased to 1.91% in the first half. Significant capacity and flexibility to support our clients, capture growth opportunities, and meet the financing requirements arising from the U.A.E.'s continued economic transformation.
Our performance in the first half gives us confidence in the durability of the bank's earnings trajectory and long-term value creation. We remain on track against our 2026 guidance and the five-year strategy launched in early 2025. We will now open the floor to questions.
If you wish to participate in Q&A, please use the raise hand button in the middle of the bottom of your Zoom screen. Please limit yourself to two questions so we can give everyone equal opportunity. Our first question comes from Shabbir Malik with Morgan Stanley. Please unmute to ask your question. Shabbir, please unmute your line to ask your question.
Apologies for that. Can you hear me now?
Yes, we can, Shabbir.
Thank you very much. I have two questions. Year to date, your loan growth has been about 10%. Can you give us some sense, based on your discussions around the potential CapEx in Abu Dhabi, what can we expect in terms of loan growth for the second half of this year? Maybe also on the margins, we saw a dip in margins in the second quarter. How do you see the margin trending for the rest of the year, and how do you think it's likely to end up by the end of 2026? Thank you.
Thank you, Shabbir. Year to date, loan growth 10%. We are positive on the trajectory and the momentum that we're seeing so far to continue into the second half of the year. The pipeline is strong, demand is strong, and we expect to have a loan growth of high teens by the end of the year. We are on track to deliver the kind of growth that we had promised in our guidance. In terms of potential CapEx, there is a lot of CapEx in the UAE economy. I'll let Dr. Monica Malik comment
Thank you, Shabbir. As Deepak mentioned, the pipeline of project awards is very broad. It goes everything from the hydrocarbon sector, including gas, to chemicals downstream, but also in the non-oil economy, transportation projects, but also in Abu Dhabi, there's a lot of real estate projects going on as well, tourism, hospitality, and of course, renewable energy.
A big focus also, I think, in the next two, three years will be diversifying supply chains and transportation links. There'll also be a lot of investment into new ports, pipelines, and export capacity. We see the pipeline broadening from here. We think this isn't just a remainder for the 2H of this year, but also going into the medium term.
Thank you, Monica. In terms of margin, yes, we've seen margin compression, come through in the second quarter of this year. I think most importantly, what we're running the bank to is the risk-adjusted NIM, which has improved over last year. It's 1.91% is our risk-adjusted NIM for the first half, compared to 1.83% in the first half of 2025.
The margin compression that we saw in the second quarter was driven primarily by the higher cost of funds, which moved up based on the environment that we're in. Our composition and mix of deposits also changed, more term deposits than CASA, even though we grew the CASA balances, but our term deposits grew at a faster rate than that.
That is to be expected in this challenging operating environment. Yields held steady between quarter one and quarter two. Yields were steady at 5.3%. It's basically driven by the cost of funds. For the balance of the year, we expect NIMs to be stable, obviously, hoping that the environment will improve. I'll also let Robbert comment on that, please.
Yeah, maybe to follow up on the funding side. Of course, the funding market in the UAE, it was always very competitive before the conflict started, and that remains to be the case. You can also see it in the liquidity surplus. At the beginning of the crisis, there was, I think 240 billion AED. That has come down to 80 billion AED as of late. There is more pressure on the surplus, there's also more pressure on the funding costs. We expect that to also to be continuing into quarter three.
Thank you.
Thank you. Our next question comes from Liu Chinchu with China Securities. Please unmute to ask your question.
Hey. Hello. Can you hear me?
Yes, we can. Please go ahead.
Yeah. I have a question about the balance sheet. I found that international loans grew much faster than the domestic UAE loans in Q2 and contribute to the majority of the quarter loan increase. Could you please break down the international growth by key geography and borrower type and product?
Domestic loan growth was comparatively moderate during this quarter. Was the main due to the temporary wait -and- see approach in UAE project awards and to geopolitical uncertainty. How do you see, now expect the four-year loan growth, including the domestic and international lending? Thank you.
Thank you for the question. Yes, we did see international lending grow in the second quarter, and that's more of a timing issue on the drawdowns of the pipeline of deals that we have to international clients. Domestic demand remains very strong. The pipeline, even domestically, remains very strong, and we expect to see that growth go up domestically as well.
In terms of the lending, is primarily in the GCC sector, and in our presence in Egypt, Kazakhstan, and Saudi Arabia, where also now we very recently opened a branch. Basically, these three or four countries, along with the GCC sector, makes up most of the international lending. Our commitments to lending also remain strong at over about AED 90 odd billion, and those drawdowns would happen in the coming quarters. Again, most of the exposure is between Egypt, Saudi Arabia, and the GCC countries, and including Kazakhstan.
Thank you. Our next question.
Thank you.
comes from Murad Ansari with GTN Middle East. Please unmute to ask your question.
Yes. Hi. Just a quick question on fee income that's been quite strong this quarter. If you could just give maybe a broad overview on how that's trended, given the current environment, and how do you see that in the second half? Do you expect this strength to continue?
Then on the loan book, pleasing to see some pickup on the retail side versus the previous quarter. Deepak, you've talked about retail being a key focus area. Are we seeing now this really turning a corner and expect retail growth to continue to accelerate from here? Thank you.
Thank you, Murad. Yes, we've had a strong first half on fee income across every line item, card-related fees, loan processing fees, asset management, trade finance, account-related fees, all of which have grown in the mid to high teens.
In particular card-related fees, we've had a strong first half, and that's also driven by certain fees that we get not on a regular basis, but they come periodically. As you would have seen in the first quarter, those were slightly lower. Now in the first half, those have increased significantly to 34%. A lot of the fees are also correlated to the lending, as lending improves 10% growth, clearly the correlation between loan processing fees also that is likely to go up.
Trade finance commission, as we add newer clients and the lending clients that we've added, we also do trade finance, FX, derivative business with these clients. With a larger client base, we would expect the fee income to grow as well. As we also mentioned on earlier occasions, as part of our five-year strategy, the growth in income and profitability is going to come not only from lending, but the fee income.
Our goal was to take it from the early 30s% of total income to closer to 40%, we're pleased to see that momentum. We're now at 38%, we'd like to continue to see that grow. Retail also will pick up. We are seeing good momentum on the retail lending side as well, and the second half of the year looks promising for us on that front.
Yeah. Deepak, just a follow-up. You did mention in the first quarter that there were some fees from Mastercard, Visa, et cetera, that were late because of timing issues, and that was the reason the first quarter number was low. Is the second quarter number in particular largely reflecting that kind of income coming through?
Yes, it does.
Okay
Is because of that one-off gains. Yeah.
Yeah. If I may add, just on the investment income, that's trading income, that's another strong quarter here. I think Robbert did talk about some expectations of moderation, it's held up very strongly in second quarter as well. Just some thoughts. Are we still seeing a lot of demand on hedging products, et cetera, that we saw in the first quarter, and how do you see the second half on this? Thank you.
Thank you. Yeah, no, I think we still continue to see strong momentum also in the second quarter, limited reason to believe that it will change going forward. I think we're still quite bullish on this. At the same time, like I said on the previous call as well, we continue to invest in people, continue to invest in new products, continue to invest in infrastructure.
That hasn't slowed down since the start of the crisis, we continue to do so. Again, I also said again on the last call that we think that roughly 60%-65% of this is repeatable. Of course, trading income will also have an element of variability in it, and that is to be seen how that develops. Overall, the flows, what we see from our client, the client behavior, I think we're still very positive on.
Great. Thank you so much.
Thank you.
Our next question comes from Olga Veselova with Bank of America. Please unmute to ask your question.
Thank you, and good day. I have two questions. One is on net interest margin, second is on costs. On net interest margin, I want to come back to the increase in cost of funds in the second quarter. I see that your deposit growth was actually pretty moderate, less than 1% Q on Q. You didn't really compete for deposit gathering. Was the mix effect or what was behind this increase in blended cost of funds?
Maybe you see that this pricing competition is coming down in the second half of the year. Do you think your margin can recover a little bit after the decline in first quarter, second quarter? My second question is on costs. In previous quarters you have mentioned good room for cost optimization, and we saw this in the numbers.
Now we see that OpEx grew by 8% year-over-year for first half, 12% year-over-year for second quarter. These are well above domestic inflation. Is there actually a room for optimization or your investments into IT and people and AI will more than offset the optimization efforts? Thank you.
Maybe I'll kick it off on the funding cost. Again, and like I've said on the before, the market remains competitive. The liquidity surplus came down, and there are certain client segments that require higher spreads. Of course, we are a relationship bank. We have many relationships whereby we roll the deposits at very favorable rates.
There is also a certain segment which is more professional, and they will require higher spreads. I think from our end, we have been very selective as to where we pay up. That's one element of it. The second element, of course, is also because rates have been going up, we have seen an increase in term deposits, which is also adding to our funding cost as such.
The third element is maybe a little bit technical in nature, but we do have a mismatch in our balance sheet in terms of dollar assets and dirham liabilities. EIBOR went up during the quarter and SOFR stayed the same, so that also added to our funding cost as such.
Again, I think going forward, like I said before, we do expect this pressure to persist, depending also a little bit what happens on the wider market, what happens to the liquidity surplus. Again, at our end, we have been trying to be very selective as to whom we are paying up. We also let some deposit just go because it's not worth it overpay.
Thank you, Robbert. On the other elements of OpEx growth and OpEx costs, if you look at the first half of this year, we still got very positive jaws, operating income up 12%, expenses up 8%, so still 400 basis points positive jaws. We are optimizing the cost base, but we're also reinvesting in the franchise.
You would see the optimization going back into revenue generating opportunities, building new businesses, new products, investing in AI, in technology, upskilling or improving the operating platforms, et cetera. We will continue to invest in the franchise as long as that generates the revenue that we expect it to generate.
With the cost income ratio coming down, return on equity going up, we feel that's the right approach to run the business. It is not a question that we are not seeing optimization. We are seeing optimization, but reinvesting in the business.
Thank you, Deepak Khullar. Thank you, Robbert Muller.
Thank you.
Thank you. Our final question comes from Waruna Kamarage with SICO. Please unmute to ask your question.
Robbert? Hello?
Go ahead, Waruna. We can hear you.
Hello?
Yes, please go ahead. We can hear you, Waruna.
Hello, can you hear me?
Yes, we can. Please go ahead.
Perhaps he can't hear.
Yeah, operator, I think Waruna is not unable to hear from our end.
One moment.
Hello?
Waruna-
Please go ahead.
Please try one more time. All right, looks like we're having some technical issues from Waruna. We'll go to our final question from Jitendra Singh with Al Ramz Capital. Please unmute to ask your question.
Hi, can you hear me?
Yes, we can. Please go ahead.
Hi. Congrats on the results, and thank you for taking my question. Just quick question on the asset quality. I was looking at your presentation on page 15, which shows some early delinquencies, for retail segment. When I look at, I know your retail portfolio is very low, credit card portfolio is very low.
When I look at the credit card delinquencies, for the market, it's been going up, whereas it's going up for autos as well for ADCB. Just wanted to get your maybe views or maybe how do you see delinquencies in this segment. Is there any concern on any of these segments? Do you see any early signs of stress? Thank you.
Thank you, Jitendra. I think if you look at slide 15, you clearly see that ADCB's delinquency ratio, or what we define as 30 days past due, is well below what the rest of the banking sector is. Whether you look at it at the entire retail portfolio level, we're well below. Or even if you look by product, personal loans, cards, mortgages, and auto loans.
If you look at auto loans, it's picked up slightly, not too much, 0.4%-0.5% in quarter one and quarter two for ADCB. Similarly, for the rest of the banking sector, 0.6%-0.7%. Mortgage delinquencies are virtually flat for the banking sector for the last three quarters, 1.9% for ADCB. It has in fact come down from 0.4%-0.2%. Cards, again, we've seen slight uptick in the banking sector from 4%-4.6%.
ADCB is far more stable between 2.5%-2.7%. We have not seen a similar uptick in the delinquencies in our portfolio across all the products. Our cost of risk, as you can see, is down to 38 basis points for the first half of this year. Our risk-adjusted then therefore has improved over the first half compared to last year.
Thank you.
Hope that answers your question.
Thank you. This concludes the Q&A session. I'll now hand back to John Peace.
Thank you very much, operator. I wonder, we probably have time for a follow-up if anybody has one, but maybe just I could ask a final question or two. Lastly, just around capital and dividend outlook. You've got this policy of the progressive dividend, and reiterated that. Are you managing your CET1 towards a certain figure and just in terms of how we should model the dividend going forward, or should we just imagine a relatively steady progression in the absolute level? Thank you.
Thanks, John. Let me take the second question first. There is no change to our guidance on dividend, which is a progressive dividend, and we promise to pay over AED 25 billion-
Yeah. AED 25, yes
more than what we paid in the previous five years. There's no change to that outlook or to that guidance. In terms of CET1, we are on a strong CET1, and we're managing the bank quite tightly on the capital ratios. The rights issue that we did last year, and the timing at which we did the rights issue was absolutely the right timing.
It's given us enough capital for the growth that we are seeing coming through 10% in the first half of this year. After the growth, our CET1 is still fairly strong at 13.66% and a total CAR of 16.5%. Our guidance on CET1 is to be above 12%. We're well above that. We will continue to manage the bank quite strongly around capital, but we have enough capital for growth that we see coming through.
On the risk-adjusted NIM, we're at 1.9%. That's an improvement from last year's 1.83%. We hope that we will continue to improve on this, if not, at least keep it stable. That is a level at which we think we can maintain our risk-adjusted NIM.
That's great. Thank you. Operator, do we have any final questions? If not, we could pass it back to management for closing comments.
I think Naresh had a question. If we have Naresh on the line, please go ahead. If you could just unmute Naresh Bilandani from Jefferies, please.
Naresh, please go ahead with your question.
Thank you, operator.
Yes. Hi, can you hear me?
Yes, Naresh. Go ahead, mate.
Harsh. Thank you so much. Deepak, Robbert. It's Naresh from Jefferies. Thank you so much for your time today. You did answer my question on the net interest margin. I had a question on how do you see this panning out in the second half of this year. Just if you could please, Deepak, add some color.
In case there is a rate hike from the Fed as we go into 2H, and given the fact that we are entering into an environment where cost of funding has been elevated or is likely to be elevated for some time, how should we think of the sensitivity around the net interest margin in the new reality? Any color there, that would be super helpful. That's first.
My second question is there any particular reason why you moved the NMC loan, I think which was categorized as fair value through P&L, from loans to the investment book? Should we be reading anything into this? Any color there would be great.
My third and final question is, if you could please just call out a few areas or factors that are keeping the impairment charges quite suppressed despite the conflict. My plain question, simple question would be, how should we factor this into our modeling into the second half of this year?
While I realize that the visibility still remains mixed, would you expect to see the second half trend be somewhat elevated on the impairment charges as compared to the first half, or should these continue to remain muted simply because there's some factors within the franchise that are a lot more resilient as compared to what we've seen in the previous years? Thank you so much. I'm happy to repeat if you didn't get any of the questions, please. Thank you.
I'll try my best, Naresh. I'll take the last two, probably Robbert can comment on the.
Right
rate hikes and the interest rate sensitivity. First one around the NMC loan, I don't think there's anything to read in there. It's just a matter of classification. We're now carrying all of the fair value through P&L assets in one category. It's more a reporting item rather than anything else. It's all loans and all investments in a particular category, which is fair value.
There's nothing further to read in there. I n terms of impairment charges, I'd just like to say that our total ECL actually rose over the first half, about AED 800 million. It went up now to AED 8.7 billion. The total coverage was held at 1.91% of the NPL book, or the entire book. This is not a release story.
What you're seeing in stage one and stage two is a change in the mix and quality of the book, not a reduction in prudence. The AED 42 billion of growth that we saw was entirely in stage one, and the new business came on at a better average credit quality than the exposures that repaid or rolled off. So stage two is a smaller book, but more heavily covered.
T he incremental provisioning has gone precisely where the risk has actually emerged, which is in stage three. I'd just like for you to take that away. I f you just look even at the numbers, which are in, I think, notes nine and 10 to the financial statements, you will see that the gross impairment charge in quarter one was AED 711 million. In quarter two, it was AED 695.
We just had significant recoveries in quarter two of AED 159 million. Therefore, you see the net charge coming down from AED 638 to AED 536, driven primarily by the recoveries. The bank continues to remain prudent and will take charges wherever we think we need to, and you can see that flowing into stage three accounts. I hope that answers your question. I'll hand over to Robbert to comment on the interest rate sensitivity.
Yeah, thank you, Deepak. On the interest rate sensitivity, if you may recall how we have been bringing this down gradually over the last couple of years. It's been stable from quarter to quarter. At this point in time, the impact of a 25 basis points hike would be roughly AED 114 million impact on NII. I f you were to translate it, that into basis points, that will be two basis points.
The impact will not be massive, and to be honest, I find it very difficult at this point in time to predict what will happen to rates because the markets have been fluctuating between one hike and two hikes. Monica, maybe you would like to comment as well.
Yes. I think, of course, at the moment, the focus is on oil prices, but we've seen that being volatile. I think the Fed is very much on a wait-and-watch mode to see how oil prices really, how sustained they are and how they filter into core. Our base case is for no rate changes this year, though, of course, if oil stays at this level, we do see risks of one rate hike in the fourth quarter of this year. It's been that market expectations have been very volatile based on geopolitical developments and oil price.
Yeah. To conclude on the impact on NII will not be massive. If it is going to be a hike of 25 basis points on an annualized basis, that's roughly a two basis point impact on NII.
Thank you, Robbert.
Thank you so much.
Thank you.
Thanks a lot
Thank you, Naresh. Just final couple of closing remarks from myself, and I'll just repeat what I mentioned earlier. Half 1 2026 has been a record on all metrics. The bank's underlying performance is strong, broad-based. We're seeing diversified income stream, both from net interest income and non-interest income. The positive operating leverage.
The pipeline is strong, the lending momentum is strong. We've done 10% in the first half. Asset quality is improving. All of this delivered in a very demanding operating environment. We're pleased with the results and the pipeline, and the second half also looks to be of the same momentum. Thank you very much for taking the time to be on the call. If there are any further questions that you may not have had the opportunity to ask, please send them across to Harsh, Head of Investor Relations, and he'll get back to you.
Thank you very much.
This concludes today's call. Thank you for your participation. You may now disconnect.