Bahrain-based Gulf International Bank (GIB) has reported consolidated net income of $85.6 million for the year ended December 31, as against $121.5 million in 2013.

The bank said its income in 2013 included two exceptional, one-off income items amounting to $21.2 million, reported the Gulf Daily News (GDN), our sister publication.

Excluding the exceptional income items, net income was $14.7 million lower than the prior year principally due to a $13.3 million year-on-year increase in operating expenses.

The increase in expenses was attributable to the investment in the implementation of the new GCC-focused universal banking strategy and the new retail bank which was launched for customers in Saudi Arabia under the brand name 'meem' last month.

Net income after tax in the fourth quarter last year was $12.9 million compared to $20 million in the fourth quarter of 2013. Total income at $257.6 million was $20.7 million or seven per cent lower than the prior year.

Excluding the exceptional income referred to above, total income was marginally up on the prior year reflecting a strong level of net interest income and higher contributions from fee and commission income, and foreign exchange income.

Net interest income, which at $158 million represented the bank's largest income source, was $5.1 million or three per cent down on the prior year.

The year-on-year decrease was principally attributable to higher costs associated with balance sheet management initiatives that form part of an ongoing programme to minimise the mismatch between the maturities of assets and liabilities.

In this context, in May last year, GIB issued a SR2 billion ($532.9 million) five-year floating rate note to investors in Saudi Arabia at a spread of 72.5 basis points above Saibor.

The bank is owned by the six GCC governments, with the Public Investment Fund of Saudi Arabia holding a majority stake (97.2 per cent).

Net interest income derived from the wholesale corporate lending activity increased by four per cent over the prior year.

The year-on-year increase reflected a further increase in the average loan volume as the bank reorientates its lending activities from transactional-based long-term project and structured finance to relationship-based large and mid-cap corporates.

This resulted in a four per cent year-on-year increase in the average loan volume as well as increased non-asset based customer-related activities.

Fee and commission income at $62.9 million was $900,000 up on the prior year, and comprised almost one quarter of total income.

Further growth in fee and commission income reflects success achieved in the implementation of GIB's new strategic focus on non-asset based, relationship-orientated products and services, and on supporting customers' requirements.

Foreign exchange income at $19.4 million was $2 million or 11 per cent up in the prior year.

It principally comprised customer-related foreign exchange revenue, and in particular revenue derived from structured products designed to assist customers in hedging their foreign exchange exposures in the current volatile markets.

Trading income was $2.4 million compared to a $9.3 million profit in the prior year.

However, prior year trading income included an exceptional $5.9 million fair value gain on a fund investment arising on the fund's recovery of a previously written-off investment.

Trading income principally comprised gains on an investment in a fund managed by the bank's London-based subsidiary, GIB (UK). Other income of $14.9 million for the year compared to $26.5 million in the prior year.

However, prior year other income included an exceptional $15.3 million recovery arising on the liquidation of a structured investment vehicle that had been written off in 2007.

The remaining other income principally comprised dividends on equity investments.

Total expenses at $164.9 million for the year were nine per cent up in the prior year. The year-on-year increase in expenses was attributable to the ongoing investment in the implementation of GIB's new GCC-focused universal banking strategy.

“Based on our significant achievements last year, we are optimistic about GIB's prospects for next year,” GIB chairman Jammaz Al Suhaimi said.

GIB chief executive Dr Yahya Alyahya said the dilution of profitability last year arises from the substantial investment in establishing a new retail bank as part of our pan-GCC universal banking strategy, and will continue through to the expected break-even of the retail bank in 2018.

The bank's Basel 2 total and tier 1 capital adequacy ratios at December 31 were 19.6 per cent and 18.1 per cent respectively.

Consolidated total assets at December 31 were $21.3 billion. Placements and liquid assets were $9 billion at the year end, representing 42 per cent of total assets.

In addition, investment securities, which principally comprise highly rated and liquid debt securities issued by major financial institutions and regional government-related entities, amounted to $3.9 billion.

Loans and advances amounted to $7.9 billion, being $400 million lower than the 2013 year-end level reflecting the run-off of legacy non-core loans.

The loans to equity ratio was 3.4 times, while the ratio of loans to customer deposits and senior term finance was 49 per cent.

At the end of last year, customer deposits represented 91 per cent of total deposits. - TradeArabia News Service