Tamweel takes a hit as earnings fall due to litigation provision



Tamweel's earnings fell by a third as the company was forced to set aside Dh21.5 million (US$5.8m) to cover the outcome of court battles.

The Islamic mortgage company reported a 33.6 per cent decrease in profit for the first quarter to Dh18m, compared with the corresponding period a year earlier.

A one-off charge of Dh21.5m set aside to cover the costs of ongoing litigation pushed the company's profit downwards, even though operating income improved by 6.3 per cent to Dh160.9m.

Tamweel did not disclose the nature of the litigation. At the time of the release of its half-year results for last year in July, Tamweel said it was involved in litigation regarding "certain sale and financing transactions", which it had not made provisions for. Despite the dip in profitability, the company was on the right track, said Varun Sood, Tamweel's acting chief executive.

"Despite the one-off litigation provision in this quarter, the operating profitability of the company improved and the successful funding transaction in this quarter strengthened the sustainability of the company and bolstered its business model," he said.

But the company's book of Islamic mortgages was flat at Dh9.2bn, as a price war for interest payments on mortgages ensued among the UAE's banks.

"They're facing competition from banks, which is obviously making it difficult for them to grow their book," said Shabbir Malik, a financial analyst at EFG-Hermes.

Tamweel launched a $300m sukuk during the first quarter, which was guaranteed by its majority shareholder Dubai Islamic Bank (DIB).

DIB increased its stake in Tamweel to 58.3 per cent for Dh374.7m in late 2010, enabling Tamweel to return to lending in November 2010.

Tamweel's mortgage lending had been halted after the onset of the global financial crisis blew holes in its business model, which was dependent on funding from wholesale credit markets.

An aborted merger with Amlak Finance led to both companies' shares being effectively frozen.

Tamweel returned to market trading in May last year, while shares in Amlak Finance remain suspended.

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