Dubai’s DIB Boosts 2014 Loan Growth Forecasts on EconomyArif Sharif
Dubai Islamic Bank PJSC has raised loan growth forecasts for 2014 as it increases its corporate and real estate businesses amid the fastest economic expansion in the lender’s home market for at least seven years.
The United Arab Emirates’ biggest Shariah-compliant bank expects lending to grow 15 percent to 20 percent in 2014, more than the 10 percent to 15 percent it had previously forecast, according to Chief Executive Officer Adnan Chilwan. As Dubai’s economy expands, the state-controlled lender is focusing on all business lines including corporate and commercial real estate, he said in an e-mailed interview yesterday.
Real estate loans, mainly to commercial projects, increased 7 percent in the first-half, Chilwan said. The company will continue to expand to take advantage of the emirate’s buoyant property market, while keeping its proportion of total lending at about 25 percent, he said. “Whilst we continued to grow our consumer business through the last few years, corporate and commercial real estate financing were put on a hold” after the credit crisis, he said.
Dubai’s economy, the second-biggest of seven that make up the U.A.E., may grow about 5 percent this year, the International Monetary Fund said in May, the fastest pace since 2007. Dubai Islamic Bank’s financing book increased 18 percent in the six months through June to 66.1 billion dirhams ($18 billion), compared to industry growth of 4.2 percent, according to data compiled by Bloomberg.
The recovery in loans will mark a turnaround for the 39 year-old bank, which increased lending just 1.6 percent last year as it reduced exposure to real estate, according to company data. It cut financing to the industry to 24 percent of total loans by the second quarter from about 40 percent in 2008, Chilwan said, after Dubai’s property market crashed during the credit crisis and defaults rose.
Dubai Islamic Bank is now securing its real estate loans by ring-fencing cash flows from sources other than the project, Chilwan said. Its lending earlier relied only on cash generated from the projects themselves, several of which were delayed after the onset of the global credit crisis in 2008, he said.
Residential property prices in the sheikhdom jumped 20 percent in the second quarter from a year ago, according to Colliers International.
An increase in corporate loan and bond deals along with investment in products such as Islamic insurance will boost more stable fee income for the bank, Chilwan said. Dubai Islamic Bank expects its fee income to rise as high as 35 percent of revenue in the medium- to long-term, up from more than 19 percent in the first half, he said.
Dubai Islamic Bank’s shares have risen 49 percent this year, matching a similar rise in Dubai’s benchmark index.
The lender is exploring the option of setting up a new bank in Kenya by the end of the year to add to its presence in Pakistan, Jordan, and Bosnia, Chilwan said. It also expects to increase its stake in Indonesia’s Bank Panin Syariah Tbk to 40 percent from 24.9 percent by the end of 2014 after receiving approval from the banking regulator, he said.
“Moving forward, we have plotted other points of interest on the globe and we aim to actively pursue these opportunities,” Chilwan said.