Bank of Sharjah posts Dh488m 2019 loss from Lebanese subsidiary

Dubai: Bank of Sharjah Group on Thursday announced its results for full year 2019 following nearly six month delay caused by audit dealys related to its fully owned Lebanese Subsidiary Emirates Lebanon Bank SAL (ELBank).

The bank for the first time in its history reported a consolidated net loss of Dh488 million in 2019 arising from provisions made in Lebanon on account of impairments of EL Bank resulting from sharp depreciation on the value of Lebanese Pound, sovereign debt default and some disputed provisions.

Despite the losses in Lebanese subsidiary, the bank’s UAE operations continued to generate solid profits with a net profit of Dh163 million for full year 2019, up 25 per cent compared to Dh130 million reported in 2018 yearend.

Losses in Lebanon

“The Bank of Sharjah Group’s net losses last year came from provisions made on our Lebanese subsidiary, EL Bank. While a portion of it represents goodwill impairment the remaining is on provisions made on sovereign bonds and balances maintained with Banque Du Liban,” Varouj Nerguizian, CEO of Bank of Sharjah told Gulf News in an interview.

The unrealized losses reported for 2019 represent Dh274 million goodwill impairment, out of which Dh185 million is denominated in Lebanese currency at the official LBP rate.

A major chunk of the reported Group losses constitute Dh377 million towards Expected Credit Losses (ECL) as per the IFRS 9 reporting standards on limited exposure in sovereign bonds and balances maintained with Banque Du Liban (BDL), Lebanon’s central bank. Lebanon deafulted on its sovereign bonds in March this year.

The provisions made on expected credit losses from sovereign bond holdings and reserves will be amortized as per expected BDL guidelines, over 5 to 10 years with effect from 2020 onwards and depending on compliance of banks to the BDL’s call for increasing banks' equty by 20 per cent in November 2019.

“We have fully complied with the demand for increasing equity by 20 per cent and are eligible for amortization within five years. Over a period of time we expect about Dh400 million to accrue to our general provisions,” said Nerguizian.

Audit misstatement

Nerguizian said the delay in declaring the results came from disputes  with the external auditors of EL Bank in Lebanon on the reporting of impairments.

The bank  believes the current qualification (of accounts) is unwarranted and conclusions reached by the Lebanese external auditors are materially misstated and misleading.

“Our calculation shows no impairment of Goodwill and the ECL provision of Dh377 million should be based on a lower figure to be provided starting 2020 over 5 years and remains within Emirates Lebanon Bank’s capacity of profit generation,” he said.

Outlook

Looking ahead, Nerguizian expects the bank to report the first half 2020 results as soon as the auditing of the bank’s books is complete.

While the Lebanese pound has slumped substantially in the first half of this year, Bank of Sharjah and EL Bank are in a better position as it has hedged its Goodwill position. “The Group results for the first half are expected to recover by about 50 per cent of the losses reported for the full year 2019,” he said.

Despite the difficult operating environment resulting from COVID-19 outbreak, Nerguizian said he does not expect to see a big spike in loan impairments.

“We do not expect to see any big surge in loan loss provisions both in Lebanon and the UAE. We are primarily into business banking and most of our customers are known to us for long. We are in constant touch with them and we are getting very positive feedbacks,” he said.

Nerguizian said, Bank of Sharjah is actively involved in providing liquidity support to its customers through this difficult period. “In addition to fully utilizing our quota of the Central Bank of UAE’s Targeted Economic Support Scheme (TESS) we have raised additional funds in the market and provided liquidity to our customers in need,” said Nerguizian.

Strong balance sheet

Despite the one-off hit the bank took from the provisions of EL Bank, the Group balance sheet remained strong in 2019. Total assets at Dh31.74 billion was up by 9 per cent compared to 31 December 2018. Net loans and advances at Dh17.73 billion, up by 3 per cent compared to previous year and total customers’ deposits of Dh21.32 billion was up by 6 per cent year on year.

At the yearend 2019, the bank reported strong liquidity position with loans and advances to deposits ratio at 83.16 per cent, net non-performing loans ratio at 9.81 per cent with capital adequacy ratio at 11.59 per cent and tier 1 capital ratio at 10.42 per cent.