Gulf International Bank (GIB), a leading merchant bank in the Middle East, said its consolidated net income after tax for the first quarter dropped to $26.8 million from $42.9 million last year.

However, this was a significant improvement when compared to the $132.4 million loss recorded in the fourth quarter of 2009, the bank said in a statement.

'The 2009 first quarter income was not representative of bank’s core underlying earnings due to benefit derived from a number of exceptional, non-recurring income items. This included interest earnings of circa. $9.5 million on non-core investment securities sold in March 2009 and related release to income of a $9.8 million non-specific provision.'

At the operating level, GIB reported consolidated operating income of $30.6 million. This was slightly higher than the operating income recorded in the fourth quarter of 2009, the statement said.

The net interest income, which at $43.2 million for the three months comprised over three quarters of total income and represents the Bank’s principal income source, was in line with interest earnings recorded in the 2009 fourth quarter although was 33 per cent down on the prior year period.

The year-on-year decrease was attributable to the deleveraging and derisking of the balance sheet and the prevailing historically low level of interest rates. Fee-related income at $8.8 million was 12 per cent lower than in the prior year period, it added.

According to GIB, the investment banking fees, representing the principal source of fee income, were nevertheless much in line with the prior year period.

'The total expenses at $25.6 million for the three months were $6.2 million or 19 per cent down on the prior year period. The significant year-on-year decrease in expenses reflected proactive measures taken in 2009 to align the cost base with the Bank’s business model.'

A net provision charge of only $2.5 million was recorded for the quarter. The limited provisioning requirement reflected the prudent and conservative provisioning actions taken in 2009, the bank said.

The consolidated total assets at the quarter end were seen at $17.7 billion, it added.

'The asset profile at March 31, 2010 reflected an exceptionally high level of liquidity in advance of the repayment of an $800 million term loan in April. Subsequent to the quarter end, the Bank successfully issued a SR3.5 billion ($933 million) 5-year bond which more than offset the maturing term loan and enhanced the Bank’s funding profile.'

Cash and other liquid assets and placements with banks totalled $6.3 billion, representing 36 per cent of total assets. Investment securities on March 31, which principally comprised highly rated and liquid debt securities issued by major financial institutions and regional government-related entities, amounted to $2.3 billion, the GIB statement said.

Following the actions taken in 2009 to derisk the balance sheet and eliminate the Bank’s vulnerability to external shocks, GIB said it had no exposure to European government debt and has accordingly not been impacted by the recent turmoil in the European government bond markets.

Loans and advances amounted to $8.8 billion, being $0.5 billion down on the 2009 year end level. As a result, the loan to equity ratio was much in line with the Bank’s target ratio of 5, while the ratio of loans to customer deposits and term finance was a prudent 76 per cent, the bank said.

Customer deposits principally comprise deposits from governments, central banks and government-related institutions. Importantly, GIB does not have any net reliance on the interbank market. The Basel 2 total and tier 1 capital adequacy ratios at the end of the quarter were an exceptionally strong 22.0 per cent and 15.9 per cent respectively, the bank said in the statement.

GIB is owned by the six GCC governments, with the Public Investment Fund of Saudi Arabia holding a majority stake (97.2 per cent). In addition to its main subsidiary Gulf International Bank (UK), the Bank has branches in London, New York, Riyadh and Jeddah, in addition to representative offices in Beirut and Abu Dhabi.-TradeArabia News Service