With customers voting with their feet and problems at its parent, Emirates Islamic Bank (EIB) may not be the best place for investors to place their funds just now.
That is what Shabbir Malik, a banks analyst for EFG-Hermes, who forecasts weak prospects at EIB, says anyway.
“We are expecting the loan book to be lower than the sector average for [EIB’s parent] Emirates NBD and its subsidiaries, which we expect to grow slower than its sector. We expect growth to come from Abu Dhabi banks.”
Mr Malik’s forecast appears to be borne out in the EIB’s figures. It has been losing market share. Financing receivables, the company’s cash generating loan book, fell to Dh12.9 billion last year from Dh14.6bn in 2010, an 11 per cent decline.
Its top line fell 27 per cent over last year to Dh1.19bn, down from Dh1.65bn the year before. EIB made a net loss last year of Dh448 million, down from a profit of Dh59m a year earlier.
Allowances for impairment – loan write-offs – increased by 47 per cent between 2010 and last year, from Dh530m to Dh783m.
Another negative indicator for EIB is coming from customers, who seem keen to take their money elsewhere. A small increase in the amount held in the bank’s current accounts was offset in spades by a huge fall in customer funds held in Sharia-compliant Wakala accounts, which tumbled from Dh10.4bn in 2010 to Dh3bn last year.
Past bad news is compounded by uncertain future prospects.
EIB is owned by Emirates NBD, which also owns the failed Islamic lender Dubai Bank.
Emirates NBD bought Dubai Bank for a nominal Dh10 from the Dubai Government last year, following the Islamic lender’s bail out by the emirate after it took a hit in the financial crisis. This creates a potential problem of duplication for EIB.
Emirates NBD has said it would be looking to exploit “synergies” between these very similar companies. Does the bank need two complete Islamic arms?
Increasingly, this could be a question Emirates NBD management asks itself while it is making cuts elsewhere – this week it announced it was culling 15 per cent of its staff.
Financial markets will not necessarily view such “efficiency measures” as a negative. However, investors should also note Emirates NBD reported net profits of Dh154.1m for the fourth quarter, down 51 per cent on the same period a year earlier.
All in all, Emirates Islamic Bank is far from a rising star right now.