Tamweel's profits rose sharply in the second quarter but its mortgage book contracted to a five-year low ahead of an acquisition by Dubai Islamic Bank that will take the company private.
The Dubai-based Islamic mortgage provider reported net income for the second quarter of Dh26.1 million, up 40.4 per cent from the corresponding period a year earlier.
Earnings rose because of a lower share of profits paid to depositors and investors.
The company's Islamic financing and investing assets fell 5.3 per cent to Dh8.59 billion, the lowest level since the first quarter of 2008 when the global financial crisis had yet to erupt. Tamweel's shareholders this month approved delisting the company's shares from the Dubai Financial Market after agreeing to let DIB buy the remaining 41.8 per cent of its shares that the bank does not already own and take the company private. The acquisition is being closely watched to determine how it will affect the credit profile of the larger Islamic lender, said Redmond Ramsdale, a Dubai-based director at Fitch Ratings.
DIB is rated "A" and "stable", while Tamweel is currently rated "BBB+" with a "positive" outlook. "Fitch is closely watching the merger with the intention of resolving the rating watch positive in the coming weeks," Mr Ramsdale said.
Tamweel's stockwas unchanged on the Dubai Financial Market yesterday at Dh1.12 per share, while DIB's stocks fell 0.2 per cent to Dh3.45 each.
Mortgage lenders have chased diminishing returns from home loans, as new companies enter the industry and undercut each other on interest rates. A total of 31 mortgage lenders are targeting the market, compared to 15 two years ago. Bankmortgage loans fell to Dh155.9bn at the end of the first quarter of this year to the lowest level since 2011, according to data from the Central Bank.
The figures represented the third consecutive quarter of declines.
Independent Finance attributed the fall to cash buyers of distressed properties. Banks were unable to generate enough new business to replace outstanding property loans being paid off.
United Arab Bank, a Sharjah-based bank which lender that has offered lower mortgage rates than many international lenders, reported earlier this week that its loan book had more than doubled within the past two years.
Separately, Sharjah Islamic Bank reported that it had generated second-quarter profits of Dh49.8m, a decline of 24.9 per cent compared with the same period a year earlier.
