Amlak Finance, the larger of the UAE's two Islamic home financing companies, lost Dh54.7 million (US$14.8m) in the first three months of the year due to falling revenues and higher defaults.
The results underscore the financial limbo Amlak has been in since it stopped offering new mortgages in late 2008. Battered by Dubai's property slump, Amlak halted trading of its shares on the Dubai Financial Market that year as authorities tried to work out a merger with the country's other big home financier, Tamweel.
Those plans eventually fell apart and Tamweel found a white knight last year in Dubai Islamic Bank, which took a controlling stake in the company. Tamweel shares resumed trading this week.
A final solution for Amlak has proven more elusive. Along with debt restructurings at divisions of Dubai Holding, Amlak's uncertain fate is one of the final major overhangs of a financial crisis that hurt the emirate's once-booming property and stock markets.
Amlak yesterday blamed its losses on "no new business origination over the past two years" and rate cuts for customers on their home financing. It also cited "falling revenues" and "higher provisioning" for defaults as responsible for the losses.
A governmental committee initially formed to look into a possible link-up with Tamweel "continues to explore the possibilities of a balance sheet restructuring of the company [Amlak]", according to financial statements posted on the Dubai Financial Market website. The committee, the statements say, has been reviewing Amlak's business and liquidity position and guiding the management "with a view to making recommendations to the UAE Government on the company's long-term stability, liquidity and assets and liabilities management requirements".
Arif Alharmi, Amlak's chief executive, did not respond to a request for further comment on the company's future.
The first-quarter loss compares with a Dh2.7m loss in the same period last year. Revenues from Islamic home financing declined to Dh134.9m in the first quarter, down from Dh160.3m in the same period last year. Impairments on Islamic mortgages rose to Dh58.4m from Dh31.4m.
Amlak has posted losses in four of the past five quarters, including a Dh221.2m loss in the final quarter of last year. Tamweel, too, suffered large losses after its business ground to a halt. Both companies were stung by an over-reliance on short-term borrowings to enter into longer-term financing deals with customers. When banks and investors cut off their short-term funding during the financial crisis, the home finance giants suddenly found themselves bereft of a crucial lifeline.
Nowadays, Amlak's uncertain fortunes contrast with those of Tamweel, which is bouncing back after a two-year freeze. After taking the company over last year, Dubai Islamic Bank has made the financier its principle home financing vehicle.
Since trading in its shares restarted, Tamweel stock has fallen by 14 per cent to 85 fils. It fell by 10 per cent on both Tuesday and Wednesday before reclaiming 6 per cent yesterday.