DUBAI // Tamweel, the Dubai-based Islamic mortgage firm that has had its shares suspended and is in merger talks, unveiled a second-quarter loss of Dh35 million (US$9.5m) Thursday as it increased provisions to cover potential bad loans. The company reported the decline even though its shares have not traded on the Dubai Financial Market (DFM) for months pending the resolution of a planned merger with Amlak Finance, the country's largest mortgage lender by market value.
"Both Tamweel and Amlak are still listed and they have a regulatory obligation to inform shareholders on quarterly earnings," said Aymen el Saheb, the head of operations at Drahem Financial Brokerage in Dubai. Tamweel said it set aside Dh89m in loan provisions in the second quarter, up from Dh6.2m in the same period last year. For the whole first half of this year, the firm made Dh141.2m in provisions, up from just Dh12.5m in the first half of last year.
"In light of the adverse market conditions, tight liquidity and falling real estate market, Tamweel has taken additional prudential provisions of Dh89m for potential delinquencies on its asset book and to offset the decline in market value of its property investments," the company said in a statement on the DFM's website. Tamweel took additional provisions against its property portfolio, which accounted for 6 per cent of its Dh11.7bn in assets, according to its half-year statement. The losses at Tamweel come after the abrupt end last autumn of Dubai's six-year property boom. During the financial crisis, liquidity dried up at the country's banks, bringing mortgage lending, the core of Tamweel's business, to a virtual standstill.
Meanwhile, property prices in Dubai fell by close to 50 per cent in some places, and are expected to slide further in the second half of this year, according to a Deutsche Bank report in June. As a result of the market turmoil, Tamweel and Amlak suspended operations last November, when the Government said the lenders would be part of a four-way merger to create the Emirates Development Bank. The Emirates Real Estate Bank (EREB) and Emirates Industrial Bank (EIB) were the other two entities to be folded into the new company. But discussions in June over the merger appeared to indicate only EREB and EIB would be part of the new Emirates Development Bank, and there has been no word since on the fate of Tamweel and Amlak.
Amid the uncertainty, shares of both firms were suspended from trading on the DFM. "The question to ask here is what is government doing about their fate?" Mr Saheb said. "Are they still supporting the payments to developers? And what about the shareholders who had to block their investments for months now?" While lending at banks has picked up somewhat in recent months, with loans at the UAE's publicly listed banks growing by 15 per cent in the second quarter of this year compared to the same quarter last year, the mortgage market is showing few signs of life. Mr Saheb said he did not see any real scope for Tamweel and Amlak to become operational soon.
Tamweel said Thursday it was still awaiting a decision from the Government on recommendations made by a steering committee presiding over merger talks. It said: "While Tamweel awaits the Federal Government's decision on the recommendations submitted by the steering committee, the board of directors and the management are working very closely on managing its portfolio quality, controlling all variable overheads and increasing efficiency at the operational level."