Ajman Bank optimism begins to bear fruit

What's Up: Ajman Bank's expansion drive starts to pay off as the Islamic bank swings into profit.

Ajman bank's stock slid 0.1 per cent to 80 fils per share yesterday. Jeff Topping / The National
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Ajman Bank has swung into profit as its expansion plans start to bear fruit, with analysts saying that because it is smaller than most of its rivals it may benefit from the troubles of bigger banks.

The Islamic lender, listed in Dubai, yesterday reported a third-quarter profit of Dh3 million versus a loss of Dh3.2m in the same period last year. The quarterly profit was the bank's third since the lender was established in 2008.

The bank's stock slid 0.1 per cent to 80 fils per share yesterday, although the Dubai Financial Market General Index fell 0.3 per cent.

Income from Islamic financing rose 53.5 per cent as a burst of lending at the start of the year began to pay off. Ajman Bank has attempted to expand this year with plans for up to four new branches, aiming to make inroads into Abu Dhabi to capture business in the capital.

The bank's pace of growth had been slowed by the misfortune of starting business during the worst global financial crisis since the Great Depression.

But Ajman Bank is poised to scoop market share from European banks that are cutting back their staffing and lending, said Talal Touqan, the head of research at Al Ramz Securities.

"European banks are no longer looking for expansion in the region," he said. "That gives an opportunity for smaller banks to compete and take part of the pie."

Still, investors should tread with caution. Expenses soared by 46 per cent during the quarter to Dh45.6m. Much of the increase was driven by a 27.2 per cent rise in staffing costs, although the bank also reported a sharp rise in provisions for write-offs to Dh5.8m from Dh36,000 last year.

The total figure is not high, but it would not take much more to push Ajman Bank back towards losses.

And the lender's rapid expansion drive has also caused its loans-to-deposit ratio to widen sharply to 132 per cent.

But part of the reason was a sector-wide decrease in deposits during the third quarter, which coincided with the worsening of Europe's financial crisis.