Finance House reports a drop in earnings as it fails to capitalise on easy borrowing conditions with new lending.
Finance House profit sinks in second quarter
A cautious approach to lending delivered little benefits to Finance House as other small banks increased their loan activity.
The Abu Dhabi lender's profit for the second quarter declined 17.6 per cent to Dh18.7 million (US$5.09m), compared with a year ago, even though Finance House remained largely free of provisioning for the bad debts that have hamstrung rival banks.
"We remain confident that in the foreseeable future, our strategy of continuously seeking and addressing profitable niche segments will enable us to continue generating robust returns on our shareholders' equity on a sustained basis, " said Mohammed Alqubaisi, the chairman of Finance House.
The bank, among the smallest lenders in the Emirates, is facing increased competition from other small operators including Ajman Bank, Al Hilal Bank and Emirates Islamic Bank, which plan to increase their branch networks across the UAE.
Finance House reported an 8.8 per cent fall in net loans during the quarter to Dh1.01 billion.
Despite a decline in interbank lending rates to record lows during the quarter, net interest income at Finance House fell 12.4 per cent to Dh25.8m compared with the same period last year.
"One of the key contributors to the lower net interest income is the sharp reduction in interest rates on interbank placements," Mr Alqubaisi said.
Though some banks had been expected to benefit from lower borrowing costs, that did not apply everywhere, said Raj Madha, a financial analyst at Rasmala Investment Bank.
"For banks which are extremely liquid, declines in interbank rates are more likely to have a negative short-term impact," he said.
This month, Finance House increased its cap on foreign ownership in the bank to 20 per cent of its stock.
Elsewhere, Sharjah Islamic Bank (SIB) reported that profit rose 4.5 per cent to Dh53.2m for the second quarter compared with the same period last year.
A reduction in provisioning helped the bank to increase its profit, although operating income fell 16.6 per cent to Dh122.6m.
"SIB was able to grow and strengthen its balance sheet while selectively expanding its financing receivables," the bank said.
"The bank's strong position and investor confidence was again evident in its ability to successfully issue $400m sukuk in May 2011."
In spite of new Central Bank regulations limiting the fees and commissions charged by banks, fee income increased for Finance House and SIB during the second quarter.