May 13, 2020 / 3:04 PM / 24 days ago

UPDATE 2-Arab Bank Q1 profit drops 36% on coronavirus provisions

(Adds more details and background)

By Suleiman Al-Khalidi

AMMAN, May 13 (Reuters) - Arab Bank Group, Jordan’s largest lender, said on Wednesday its first-quarter profit dropped 36% as it increased provisions to cope with disruptions from the coronavirus pandemic, but loans and customer deposits continued to grow.

The bank, one of the Middle East’s major financial institutions, said first quarter net profit fell to $147.6 million from $231.8 million a year earlier. Loans grew 2 percent to $26.2 billion and customer deposits rose 5% to $35.2 billion compared with the same period last year.

Chairman Sabih al-Masri said the bank’s diversified operations in over 30 countries in five continents would cushion the impact of coronavirus.

“The bank has in previous years demonstrated its effectiveness in operating in challenging economic environments,” he added.

Bankers say nearly 70% of the bank’s revenues come from its global operations, including it’s 40% stake in Saudi Arabia’s Arab National Bank ANB.

Based in Amman, but with most of its assets and deposits outside Jordan, Arab Bank has built a reputation for stability amid regional political upheaval.

Arab Bank’s Chief Executive Officer Nemeh Sabbagh attributed the drop in net profit to “building more provisions during Q1 as a precautionary move against the financial implications of COVID-19.”

He did not give a figure of how much was set aside in provisions but said the bank’s provisions coverage ratio for non-performing loans continued to exceed 100%.

Sabbagh said net operating income had dropped by only 2% and liquidity continued to be high, with a loan-to-deposit ratio of 74.4% as of end of March.

The bank maintained a strong capital base with equity of $9.2 billion and a capital adequacy ratio of 16.5%, it said.

Like other banks, Arab Bank would operate in a business climate with a “higher cost of risk and lower interest rates,” due to the slowdown from the impact of the crisis, Sabbagh said.

The Central Bank of Jordan had ordered commercial banks last March to freeze distribution of dividends in a move bankers say was to prevent an outflow of foreign currency by outside investors at a time the economy was facing mounting pressures from the impact of new coronavirus. (Reporting by Suleiman Al-Khalidi; editing by David Evans and Lincoln Feast.)

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