x Abu Dhabi, UAEMonday 22 January 2018

Tamweel loan book at five-year low after mortgage cap

Tamweel's earnings rose in the first quarter, but a sharp decrease in the size of its lending book set its shares falling.

Tamweel's loan book shrank to its lowest level in five years during the first quarter of this year as competition from commercial lenders ate into its core business and a Central Bank cap on mortgages deterred new property buyers.

The Islamic mortgage lender reported net profits of Dh20.5 million (US$5.6m) during the first quarter of the year, representing a 13.4 per cent increase in profits compared with the same period a year earlier, buoyed by a falling share of profits paid out to investors.

The improved profits beat analysts' estimates of Dh19.5m.

But Islamic financing assets fell by 2.6 per cent to Dh9.08 billion, representing the lowest level of mortgages on the company's books since June 2008. Tamweel's shares fell 2.5 per cent to Dh1.15 each after the earnings were released.

"For me the disappointment would be the contraction in the loan book," said Shabbir Malik, a financial analyst at EFG Hermes. "This shows that the competition from commercial banks is making it difficult for Tamweel to grow."

Customers' repayments of existing mortgages appeared to have also contributed to the decrease in Tamweel's loan portfolio, Mr Malik added.

During the quarter, the Central Bank said it would impose a cap on mortgage lending by limiting loan-to-value ratios on property purchases.

Estate agents said that uncertainty over the new regulation caused numbers of mortgage buyers to disappear almost overnight. Large numbers of cash buyers have pushed up property prices across Dubai in the meantime.

After lobbying by the UAE Banks Federation, the Central Bank agreed to amend the limits to allow for a higher cap than that initially proposed.

Tamweel reported a 7.4 per cent decrease in operating income to Dh149m, with charges on bad debts more than doubling to Dh19.9m.

The company is currently being targeted for acquisition by its majority shareholder Dubai Islamic Bank, which is seeking to buy out the 41.8 per cent of the company's shares which it does not currently own.

DIB has received regulatory and shareholder approval to offer its own shares to Tamweel's minority shareholders.

The takeover will reduce Tamweel's cost of funding and allow it to compete more effectively with commercial banks, Mr Malik added.