• Raise 2016-17 estimates; Reiterate Buy We raise ADCB’s 2016-17 estimates by c5% as we factor-in wider spreads and slightly stronger loan growth. ADCB’s impressive deposit mobilisation in 4Q2015 – deposits grew 10% Q-o-Q – reinforces our belief in the bank’s ability to collect deposits in a tight liquidity environment. An adequate provision buffer – NPL coverage: 129% and GP reserve: 1.9% - and robust capitalisation – Tier 1: 16.3% - positions ADCB strongly to cope with a cyclical slow-down, in our view. We expect earnings to decline c11% Y-o-Y in 2016, mainly due to higher provisioning. That said, ADCB’s valuation – 2016e P/BV of 1.4x – is undemanding in light of 2016e ROE of c18.0%. We cut our FV to AED8.0 from AED8.1 (raise cost of equity by 50bps to 11.5%), however we reiterate our Buy rating on the stock.
• 4Q2015 results: earnings in-line, cash pay-out stable at c50% ADCB’s earnings declined 1.2% Q-o-Q on weaker spreads (strong deposit growth) and higher provisioning. However, loan growth was decent at 2.0% Q-o-Q, and fees rose 15.0% Q-o-Q. Although provisioning was up 67% Q-o-Q, cost of risk continues to be subdued at 25bps.
• Eyeing market share in select segments; pressure on spreads to ease We expect revenue growth to moderate to c2.0% in 2016 from c11.0% in 2015, as loan growth decelerates and spreads normalise. ADCB aims to gain loan market share in the SME sector, as foreign banks curtail exposure to this segment. Pressure on spreads should ease as the bank lets go of expensive deposits and as it pushes for wider loan spreads in 2016. Less exposed to regional risks than peers We believe ADCB’s cost of risk has bottomed out in 2015 after declining steadily since 2009. The bank’s limited exposure outside the UAE (10% of the loans) and to the GCC (3%), implies that it is less likely to get affected by corporate blowouts outside the UAE. We are cautious though and expect ADCB’s cost of risk to rise to 68bps in 2016e from 33bps in 2015.

Shabbir Malik
Murad Ansari