Dubai Islamic Bank’s first-quarter profit drops on higher impairment charges

Net profit for the reporting period declines to Dh1.11 billion

Dubai Islamic Bank reported a 17 per cent drop in its first-quarter net profit on Thursday. Mona Al Marzooqi / The National

Dubai Islamic Bank, the largest Sharia-compliant lender in the UAE, reported a 18 per cent drop in its first-quarter net profit as impairment charges and operating expenses rose amid the coronavirus pandemic.

Net profit attributable to owners of the bank for the three months ending March 31 declined to Dh1.11 billion, from the year-earlier period, the bank said in a statement to the Dubai Financial Market, where its shares trade. Impairment charges climbed to Dh1.48bn for the reporting period, up from Dh347 million recorded at the end of March 2019.  Operating expenses rose 40 per cent year-on-year to Dh839m during the period.

“We have adopted a highly conservative approach to provisioning in this quarter building coverage and protection against any impacts on asset quality arising out of the current environment,” Dubai Islamic Bank group chief executive, Adnan Chilwan, said.

“Extraordinary gain and recurring profits allowed us to build further stage 1, 2 & 3 provisions, adding to the management overlay totalling Dh1.5bn to protect the financial position of the bank from any expected impacts emanating from the pandemic, oil price volatility and low-interest rate environment.”

Total assets at the end of the first quarter grew 19 per cent to Dh276.4bn, while net financing and sukuk investments rose 17 per cent from the end of the last year to Dh216.2bn. Customer deposits increased 22 per cent to Dh199.9bn during the first three months of 2020.

Total income at the end of the first quarter rose 4 per cent year-on-year to Dh3.5bn, the bank said.

Most lenders across the world are at risk of a decline in profitability as loan growth slows and interest rates fall as central banks embark on monetary easing measures to soften the economic blow caused by the coronavirus pandemic. The International Monetary Fund projected a 3 per cent contraction in the global economy in 2020 as the pandemic led to a halt in economic activity.

Dubai Islamic Bank, earlier this year, completed its acquisition of competitor Noor Bank to create one of the largest Islamic banks in the world

The bank's shareholders have also approved a proposed increase in lifting the lender's foreign ownership limit from 25 per cent to 40 per cent.

“The recent shareholders’ approval on the increase in foreign ownership limit to 40 per cent for DIB will have a fundamental positive impact for DIB primarily through the increased weightings in global and regional indices,” Mr Chilwan said.

While lenders elsewhere in world are facing headwinds due to coronavirus-forced economic slowdown, banks in the Gulf are well-placed to navigate the current downturn, S&P Global Ratings said last week.

“Rated banks' profitability and provision cushions built over past years will help them navigate the current rough waters," the ratings agency said.

The buffers developed during healthier times by the region's banks means they could take a hit worth a combined $36bn from the slump caused by the Covid-19 and falling oil prices before facing losses.