Dubai: Dubai Islamic Bank (DIB), regarded as the UAE's largest Islamic bank, is considering raising its stake in mortgage firm Tamweel, the bank told the Dubai Financial Market yesterday.
Both stocks have been suspended from trading since it was announced in October 2008 that Tamweel and Amlak, another Dubai Financial Market-listed mortgage finance company, would be merged.
While it was not clear what would happen to the proposed merger, DIB said it was considering the possibility of increasing its shareholding in Tamweel.
"DIB currently owns about 20 per cent of Tamweel and will provide further information on raising the stake when it becomes available," DIB said in a statement.
Prior to the financial crisis that dried up its liquidity, Tamweel and Amlak together controlled more than 60 per cent of the UAE mortgage market.
The decision to merge was taken with the objective of converting Tamweel into an Islamic bank to open up their access to retail deposits.
With the decline in real estate prices and the absence of wholesale funding from the Islamic banking market, mortgage financing by both firms has stagnated.
Banking industry sources said DIB's plans to boost its stake in Tamweel was conditional upon creditors agreeing to reschedule the mortgage lender's debt.
Analysts said the move could weaken DIB's financial performance.
The bank's net income from financing in the first quarter of 2010 fell 21 per cent quarter on quarter, while income from fees and commissions dropped 24 per cent.
"We are still concerned with DIB's asset quality," HC Securities said in a recent report.
"As such, we believe for now the bank should focus on its risk management rather than expanding its balance sheet. We are also concerned with the outlook of Tamweel."
