The Central Bank has agreed to allow Dubai Islamic Bank to raise its shareholder payout, softening its previous demand that the bank reduce its cash dividend to no more than 10 per cent.
Dubai Islamic Bank cash dividend increase is agreed
The Central Bank has agreed to allow Dubai Islamic Bank (DIB) to raise its shareholder payout, softening its previous demand that the bank reduce its cash dividend to no more than 10 per cent.
DIB raised its dividend to 12.5 per cent, after its earlier proposal for a 15 per cent shareholder payout was vetoed by the Central Bank.
The bank's annual shareholder meeting "approved the board of directors' recommendation on the distribution of 12.5 per cent cash dividend of the capital as on 31 December 2011," it said in a statement to the Dubai Financial Market.
The Central Bank has "concurred" with the increased dividend, the statement added. The bank's stock rose 1.3 per cent to Dh2.22 in trading following the announcement.
This month, DIB had attempted to distribute a 15 per cent cash dividend but was ordered by the Central Bank to reduce the payout to 10 per cent.
Dividends are calculated on the basis of a Dh1 per share nominal value, meaning a 12.5 per cent dividend is equal to 12.5 fils per share.
The earlier 15 per cent dividend proposal would have breached Central Bank rules that restricted payouts to 50 per cent of net profits.
But bank dividends have been in focus among shareholders this year as investors scour the banking sector for signs of recovery.
Abu Dhabi Commercial Bank paid its first dividend since 2008 this year, while First Gulf Bank's dividend - distributing Dh1.5bn and one free share for every share held - caught the attention of many investors.
A shareholder revolt at the National Bank of Abu Dhabi's annual general meeting this month led to the bank being forced to increase its dividend of bonus shares from 30 per cent to 35 per cent, with investors complaining that higher dividends were available elsewhere in the sector. The bank's cash dividend was maintained at 30 per cent.
The higher dividend would appease investors who have seen bigger dividend payouts elsewhere in the sector, but bigger players might be less appreciative, said Shabbir Malik, a financial analyst at EFG-Hermes.
"Retail investors definitely love cash payouts and the better the payout, the more retail investors get interested in the stock," he said.
"Institutional investors are more interested in asset quality metrics and what kind of loan growth they're expecting."
Although DIB is well-capitalised compared with international rivals, it is poorly capitalised compared with Abu Dhabi banks and comparisons with payouts at rivals such as First Gulf Bank are undue, Mr Malik added.
"If you look at their loan book, that's been going down. If you look at their core banking activities, those aren't doing too well," he said. "Even on a higher dividend they might get a short-term rally in the stock, but give it a few more weeks and it'll start coming down."
The UAE's largest Islamic lender, Dubai Islamic Bank, generated full-year profits of Dh1.01 billion (US$3.71bn), an increase of 82.6 per cent on the corresponding period a year earlier.