A bank customer speaks with a customer service representative at DIB’s main branch in Deira. The bank is in full alignment with its growth plans for the next three years. Image Credit: Gulf News Archives

Dubai:Dubai Islamic Bank (DIB), the largest Islamic bank in the UAE by assets, has completed a five-year consolidation from 2009 to 2013 and has charted a plan for strong balance sheet growth in 2014-16 period.

“With a stronger balance sheet, improved asset quality,sharply focused business plan, decline in non-performing loan (NPL) growth, better capitalisation levels, reduced costs and a strong low cost funding base, today we are in a position to achieve our growth targets,” said Dr. Adnan Chilwan, CEO of DIB, after announcing the bank’s first quarter results last week.

DIB’s first quarter figures vouch for its growth momentum. While the bank reported a 111 per cent increase in net profit to Dh636.6 million in the first quarter of 2014, the bank’s total assets increased by 6.9 per cent to Dh121.1 billion from the end of 2013.

Key themes for this year are to grow both consumer and wholesale banking business achieving return on assets of about 1.7 per cent with a return on equity of 15 to 17 per cent. Improved profitability is targeted through growth in financing book and redeployment of liquidity from low earning assets to higher earning assets.

The bank has started the year in full alignment with its growth plans for the next three years. In the first quarter of the year DIB’s net funded income margins grew by 3.3 per cent against a target of 3.25 per cent, return on assets were up at 2.2 per cent on rise in overall income, while return on equity exceed the earlier guidance of 15 to 17 per cent.

The bank’s net financing assets grew 6.8 per cent to Dh59.9 billion at the end of the first quarter of 2014 compared to Dh56.1 billion at December 31, 2013.

“Overall credit has grown significantly during the first quarter of 2014 outpacing the market. We expect the trend to continue for the rest of the year,” said Dr Chilwan.

The bank’s consumer banking assets reported a consistent increase by 4 per cent to Dh27.3 billion compared with Dh26.2 billion at December 31, 2013. Corporate banking assets have also grown significantly by 9 per cent to Dh37.4 billion.

“Loan book adding 7 per cent quarter on quarter is fastest among peer group. This uptake has been driven by robust growth within the retail segment and corporate banking as the bank re-gears its balance sheet away from commercial real estate. We expect credit growth to remain buoyant over the coming quarters and pencil in a 12 per cent loan book expansion for 2014.” Shuaa Capital wrote in a note.

Impairment losses have declined by 45.8 per cent to Dh195 million in the first quarter of 2014 compared with Dh360 million in the same period last year. Non-performing assets have shown a consistent decline with NPL ratio improving to 10.3 per cent in the first quarter of 2014 compared to 11.1 per cent at the end of 2013. Impaired financing ratio also improved to 8.4 per cent in the first quarter of 2014 from 8.8 per cent at the end of 2013. Provision coverage improved to nearly 67.4 per cent at the end of the first quarter of this year compared to 64 per cent at the end of 2013. The overall coverage continues to improve as collateral values get a boost due to positive performance in the Dubai markets.

“Our asset quality continued to improve leading to a sustained decline in non-performing financing. The reduction is mainly due to full or partial settlement of exposures coupled with increase in overall financing portfolio. Clearly we have exceeded our targets,” Dr. Chilwan said.

Customers’ deposits as of March 31, 2014 increased by 8.9 per cent to Dh86.1 billion from Dh79.1 billion as of December 31, 2013. The customer deposits have grown largely due to increase in CASA [current and savings account] which now comprise 46 per cent of total deposits.

Strong financing growth coupled with relatively low cost funding has boosted the bank’s margins in the first quarter with net funded income margin improving to 3.3 from 3 per cent in the same period in 2013.