Bank of Sharjah reports Dh120 million pre-provision Q2 net profit
Provisions liked to Lebanese subsidiary hurts Group’s consolidated profits
Dubai: Bank of Sharjah Group has reported a pre-provision net profit of Dh120 million.
Upon application of Dh587 million as 'hyperinflation effect' linked to operations of its Lebanese subsidiary Emirates Lebanon Bank (ELBank), the Group recognized a net loss of Dh467 million and a total comprehensive loss of Dh447 million versus a positive equity component of Dh740 million.
The Group’s balance-sheet remains strong, with total assets standing at Dh37.70 billion, up 4 per cent compared to Dh36.14 billion t yearend 2020. The Sharjah entity enjoys a high asset quality and other robust metrics as a result of strict adherence to maintaining a focused approach to lending, recovery and funding.
It also enjoys comfortable liquidity, with a customer deposit base of Dh23.94 billion and a loans-to-deposits ratio of 84 per cent compared to 82 per cent at end 2020. It has a cost-to-income ratio of 50 per cent compared to 32 per cent at the close of 2020.
Hyperinflation provisions
The operations in Lebanon continued to witness unprecedented events stemming from political and economic turmoil since October 17, 2019. The Group has complied with Banque du Liban (BDL) Circular No. 13129, dated November 4, 2019, calling for the increase by 20 per cent of the equity of Lebanese banks prior to June 30, 2020.
The International Monetary Fund (IMF) published in December 2020 the inflation forecasts, whereby the Lebanese economy is considered hyperinflationary for the purpose of applying IAS 29 and for the retranslation of foreign operations in accordance with IAS 21. This is reflected in consolidated interim financial statements for the period ending June 30, 2021.
Accordingly, the financial statements of Emirates Lebanon Bank SAL have been restated by applying a general price index to the historical cost, to reflect the changes in the purchasing power of the LBP, on the closing date of the financial statements.
The net effect of hyperinflation on the consolidated equity for the period ended June 30 was positive and amounted to Dh153 million, representing the difference between Dh587 million negative variation on the P&L figures and Dh740 million positive variation on total equity. This has pushed the net equity of the Group by Dh153 million to Dh3.44 billion as at June 30 versus Dh3.16 billion as at December 31, 2020.
“Despite COVID-19, the Bank performed exceptionally well and delivered positive and eloquent results that under hyperinflation accounting moved from P&L directly to equity, ” said Sheikh Mohammed Bin Saud Al Qasimi, Chairman of Bank of Sharjah.