Business

Emirates Islamic Bank twinkles less brightly

What's Down: With customers voting with their feet and problems at its parent, Emirates Islamic Bank is looking like it may not be the best place for investors to place their funds at the moment.

Laura Miller

March 14, 2012

With customers voting with their feet and problems at its parent, Emirates Islamic Bank (EIB) may not be the best place for investors to place their funds just now.

That is what Shabbir Malik, a banks analyst for EFG-Hermes, who forecasts weak prospects at EIB, says anyway.

“We are expecting the loan book to be lower than the sector average for [EIB’s parent] Emirates NBD and its subsidiaries, which we expect to grow slower than its sector. We expect growth to come from Abu Dhabi banks.”

Mr Malik’s forecast appears to be borne out in the EIB’s figures. It has been losing market share. Financing receivables, the company’s cash generating loan book, fell to Dh12.9 billion last year from Dh14.6bn in 2010, an 11 per cent decline.

Its top line fell 27 per cent over last year to Dh1.19bn, down from Dh1.65bn the year before. EIB made a net loss last year of Dh448 million, down from a profit of Dh59m a year earlier.

Allowances for impairment – loan write-offs – increased by 47 per cent between 2010 and last year, from Dh530m to Dh783m.

Another negative indicator for EIB is coming from customers, who seem keen to take their money elsewhere. A small increase in the amount held in the bank’s current accounts was offset in spades by a huge fall in customer funds held in Sharia-compliant Wakala accounts, which tumbled from Dh10.4bn in 2010 to Dh3bn last year.

Past bad news is compounded by uncertain future prospects.

EIB is owned by Emirates NBD, which also owns the failed Islamic lender Dubai Bank.

Emirates NBD bought Dubai Bank for a nominal Dh10 from the Dubai Government last year, following the Islamic lender’s bail out by the emirate after it took a hit in the financial crisis. This creates a potential problem of duplication for EIB.

Emirates NBD has said it would be looking to exploit “synergies” between these very similar companies. Does the bank need two complete Islamic arms?

Increasingly, this could be a question Emirates NBD management asks itself while it is making cuts elsewhere – this week it announced it was culling 15 per cent of its staff.

Financial markets will not necessarily view such “efficiency measures” as a negative. However, investors should also note Emirates NBD reported net profits of Dh154.1m for the fourth quarter, down 51 per cent on the same period a year earlier.

All in all, Emirates Islamic Bank is far from a rising star right now.

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Formula 1 qualifying, 5pm

Formula 2 race, 6:40pm

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At a glance

Global events: Much of the UK’s economic woes were blamed on “increased global uncertainty”, which can be interpreted as the economic impact of the Ukraine war and the uncertainty over Donald Trump’s tariffs.

 

Growth forecasts: Cut for 2025 from 2 per cent to 1 per cent. The OBR watchdog also estimated inflation will average 3.2 per cent this year

 

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Spending cuts: Overall day-to day-spending across government cut by £6.1bn in 2029-30 

 

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Defence: New high-tech weaponry, upgrading HM Naval Base in Portsmouth

 

Housing: Housebuilding to reach its highest in 40 years, with planning reforms helping generate an extra £3.4bn for public finances

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Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.

Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.

“Within the next two to three years, we are looking at reaching $2 to $3 billion as a conservative estimate and we do see an opportunity to do so,” said Mr AbuShaban.

Mercer does not directly make investments, but allocates clients’ money they have discretion to, to professional asset managers. They also provide advice to clients.

“We have buying power. We can negotiate on their (client’s) behalf with asset managers to provide them lower fees than they otherwise would have to get on their own,” he added.

Mercer Wealth’s clients include sovereign wealth funds, family offices, and insurance companies among others.

From its office in Dubai, Mercer also looks after Africa, India and Turkey, where they also see opportunity for growth.

Wealth creation in Middle East and Africa (MEA) grew 8.5 per cent to $8.1 trillion last year from $7.5tn in 2015, higher than last year’s global average of 6 per cent and the second-highest growth in a region after Asia-Pacific which grew 9.9 per cent, according to consultancy Boston Consulting Group (BCG). In the region, where wealth grew just 1.9 per cent in 2015 compared with 2014, a pickup in oil prices has helped in wealth generation.

BCG is forecasting MEA wealth will rise to $12tn by 2021, growing at an annual average of 8 per cent.

Drivers of wealth generation in the region will be split evenly between new wealth creation and growth of performance of existing assets, according to BCG.

Another general trend in the region is clients’ looking for a comprehensive approach to investing, according to Mr AbuShaban.

“Institutional investors or some of the families are seeing a slowdown in the available capital they have to invest and in that sense they are looking at optimizing the way they manage their portfolios and making sure they are not investing haphazardly and different parts of their investment are working together,” said Mr AbuShaban.

Some clients also have a higher appetite for risk, given the low interest-rate environment that does not provide enough yield for some institutional investors. These clients are keen to invest in illiquid assets, such as private equity and infrastructure.

“What we have seen is a desire for higher returns in what has been a low-return environment specifically in various fixed income or bonds,” he said.

“In this environment, we have seen a de facto increase in the risk that clients are taking in things like illiquid investments, private equity investments, infrastructure and private debt, those kind of investments were higher illiquidity results in incrementally higher returns.”

The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds, said in its 2016 report that has gradually increased its exposure in direct private equity and private credit transactions, mainly in Asian markets and especially in China and India. The authority’s private equity department focused on structured equities owing to “their defensive characteristics.”

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Bangladesh (from): Shadman Islam, Mominul Haque, Soumya Sarkar, Shakib Al Hasan (capt), Mahmudullah Riyad, Mohammad Mithun, Mushfiqur Rahim, Liton Das, Taijul Islam, Mosaddek Hossain, Nayeem Hasan, Mehedi Hasan, Taskin Ahmed, Ebadat Hossain, Abu Jayed

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Essentials

The flights
Emirates, Etihad and Malaysia Airlines all fly direct from the UAE to Kuala Lumpur and on to Penang from about Dh2,300 return, including taxes. 
 

Where to stay
In Kuala Lumpur, Element is a recently opened, futuristic hotel high up in a Norman Foster-designed skyscraper. Rooms cost from Dh400 per night, including taxes. Hotel Stripes, also in KL, is a great value design hotel, with an infinity rooftop pool. Rooms cost from Dh310, including taxes. 


In Penang, Ren i Tang is a boutique b&b in what was once an ancient Chinese Medicine Hall in the centre of Little India. Rooms cost from Dh220, including taxes.
23 Love Lane in Penang is a luxury boutique heritage hotel in a converted mansion, with private tropical gardens. Rooms cost from Dh400, including taxes. 
In Langkawi, Temple Tree is a unique architectural villa hotel consisting of antique houses from all across Malaysia. Rooms cost from Dh350, including taxes.