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Dubai Islamic Bank results fail to excite

Analysts kept a neutral rating on Dubai Islamic Bank as the bank trades at a high valuation compared with its peers.

Dubai Islamic Bank's earnings, announced over the weekend, did little to convince analysts the lender is back to full speed.

The bank reported net income last year of Dh806 million, a 33 per cent decline on 2009, triggered by a drop in operating income and an increase in provisioning. Fourth-quarter net income reached Dh35m, which was almost 36 per cent below the consensus of analysts at Dh55m.

Jaap Meijer, a banking analyst at Alembic HC Securities, said the fourth-quarter numbers were an improvement over several flat quarters previously but not enough to warrant a re-rating on the shares. He holds a "neutral" rating on the stock.

The lender trades at a high valuation, with a price-to-equity ratio of more than 12, compared with its peers.

Dubai Islamic Bank (DIB) is also the most exposed to the property sector of all UAE lenders, with property making up almost 40 per cent of its loan book.

DIB is yet to disclose its full financialsor its purchase price of Tamweel shares, the Islamic home finance provider. DIB increased its stake in Tamweel to 58 per cent last year, up from 21 per cent. A key question among analysts is whether the integration of Tamweel has begun to affect the bank's financial results.

The loan-to-deposit ratio increased to 90 per cent at the end of last year, up from 78 per cent in 2009. Mr Meijer said that was possibly due to the added stake in Tamweel. He estimated organic loans - all those excluding the Tamweel transaction - declined by almost 5 per cent in the fourth quarter compared with the third quarter.

Total capital adequacy ratio slightly improved last year to 17.8 per cent, from 17.5 per cent in 2009.

DIB's net loan book grew 15 per cent last year to Dh57 billion, but was 4 per cent lower than analysts expected. Deposits remained almost unchanged at Dh63.4bn, also 4 per cent below expectations and 1 per cent lower year on year.

The shares gained 2.8 per cent yesterday on the back of a broad rally in Dubai.



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