x Abu Dhabi, UAEWednesday 26 July 2017

Dubai Islamic Bank falls out of favour

Property exposure, asset quality lead to gloomy forecasts

DUBAI // It may be a pioneer of Islamic banking and the largest Sharia-compliant lender in the country, but analysts are increasingly pessimistic about the short-term outlook for Dubai Islamic Bank (DIB). The bank is falling out of favour due to concerns about its asset quality and exposure to the property sector. Its declining income from fees and uncertainties over its 19 per cent stake in the mortgage financier Tamweel are added worries.

Two brokerage houses, HC Securities and Global Investment House, issued gloomy forecasts for the stock, which yesterday closed 0.4 per cent up at Dh2.22. The bank on May 5 posted net profit of Dh200 million (US$54.4m) for the first quarter, missing analyst expectations by a wide margin. Losses related to associated companies, mainly the Dubai-listed Deyaar, were among the drags on earnings. The brokerages warned of DIB's further exposure to Dubai property, which has taken a beating since autumn last year.

Despite those troubles, DIB's property lending increased 5.1 per cent to Dh21 billion last year compared with 2008, constituting 40 per cent of the overall loan portfolio. "The exposure poses great risk. The performance of this sector will have additional negative ramifications for the bank," wrote Faisal Hassan, the head of research at Global Investment House. An equally significant problem is the bank's ratio of non-performing loans, which is believed to be among the highest in the country. Although DIB has not disclosed the figures, HC estimates the ratio to be close to last year's 8.7 per cent of the total loan book.

"As such, we believe for now the bank should focus on its risk management rather than expanding its balance sheet," the HC research note said. DIB shares have been trading flat since the start of the year and are down 29 per cent since their peak in October. skhan@thenational.ae