x Abu Dhabi, UAE Friday 21 July 2017

Losses widen for Amlak in contrast with rival Islamic lender Tamweel

Amlak posted a larger net loss as income from its core business fell and impairments more than doubled.

Amlak Finance is in limbo due to a three-year long restructuring by the Government. Sammy Dallal / The National
Amlak Finance is in limbo due to a three-year long restructuring by the Government. Sammy Dallal / The National

Amlak, the Islamic home loan company which stopped issuing new credits in 2008, posted a larger net loss as income from its core business fell and impairments more than doubled.

Amlak Finance, which is in limbo due to a three-year long restructuring by the Government, made a net loss of Dh52.2 million (US$14.2m) for the second quarter, compared with a loss of Dh597,000 in the same period last year.

Amlak and its rival Tamweel were the two largest Islamic home loan companies during Dubai's six-year building spree.

But the decline in property prices in the autumn of 2008 exposed weaknesses in their funding models, which relied on raising short-term debt to finance the long-term mortgage commitments of their customers.

Trading of Amlak and Tamweel was suspended in November 2008 after both companies lost access to sources of wholesale funding.

A plan to merge the companies was floated by the Government, but abandoned after Dubai Islamic Bank raised its stake in Tamweel to 57.3 per cent, effectively rendering the lender a subsidiary.

Unlike Amlak, which is still unable to write new business, Tamweel has resumed lending and last month reported a fivefold increase in profits.

Tamweel declared net income of Dh27.7m for the second quarter, its best quarterly result since the decline of the Dubai property market in the wake of the global financial downturn.

Amlak's revenue declined 12 per cent to about Dh148m "as a result of no new business origination over the past two years continuing into 2011 and further mortgage rate cuts offered to existing customers", according to the company. Impairments on Islamic financing and investing assets jumped to Dh61.2m from Dh29.7m.

A government committee studying an overhaul of Amlak "continues to explore the possibilities of a balance-sheet restructuring", the company said in May.

Jaap Meijer, a senior analyst at AlembicHC in Dubai, said Amlak needed significant impairments on its property investment portfolio. "Amlak may also need a capital increase, depending on the size of the necessary impairments and [it] also needs to secure longer-term funding."

Tamweel was in a far better position because it had a much smaller investment property book and it had already taken large impairments and secured long-term funding. "We expect Tamweel to gain market share in new mortgage origination," he said.

After balance-sheet restructuring, Amlak should focus on mortgage origination, as Tamweel had done, said Mr Meijer.

* with Bloomberg and Reuters

gduncan@thenational.ae