The Dubai Islamic Bank achieved a 47 per cent increase in total income to Dh4.4 billion during the first quarter of 2023, maintaining momentum from 2022 and resulting in a net profit of Dh1.5 billion, a 12 per cent year-on-year growth.
This has been attributed to the UAE’s stable operating environment amidst challenges from within the global economy. Consumer confidence in the domestic economy is reflected in the return of trade and tourism, increasing retail spending, and rising profitability in the banking and finance sector.
Despite recent interest rate hikes the market has experienced, DIB’s new financing during the quarter totalled Dh15.8 billion, a 35 per cent increase from the previous year’s Dh11.7 billion. The rise was from corporate and retail financing alike. This impressive growth was surprising, given the market’s past experience with rate hikes.
DIB’s fixed income portfolio grew 6 per cent year-to-date, reaching Dh55 billion. DIB continued to invest primarily in highly rated sovereign sukuk instruments. Although impairment losses increased 19 per cent to Dh496 million, the bank’s asset quality remained robust, with a non-performing financing (NPF) ratio of 6.5 per cent.
The bank’s coverage ratio and cash coverage ratio have been increasing, reflecting its prudent approach to risk management. The balance sheet expanded 1.3 per cent year-to-date to Dh292 billion.
The UAE banking sector remains insulated from a global contagion, with steady growth in balance-sheets and rising profitability levels.
Concerns over rate hikes put to rest
DIB’s performance is not an isolated incident. Other banks that announced their Q1-23 numbers have similar growth trajectories to show, putting to rest concerns about the impact of US Federal Reserve rate hikes on borrowing appetite among local businesses and individuals.
The DIB consumer banking financing portfolio reached Dh53 billion, gaining 2 per cent on the back of growth in home- and personal finance. The portfolio’s new underwriting reached Dh5 billion, generating Dh1.2 billion in revenues, a 19 per cent improvement from Q1-22’s Dh968 million.
DIB’s net financing and sukuk investments closed out the first quarter with Dh240 billion, a gain of 1 per cent. There was nearly Dh21 billion in new underwriting during Q1-23, compared to Dh15 billion a year ago.
DIB’s customer deposits were Dh198 billion, with current and savings accounts (CASA) at Dh80 billion, comprising 40 per cent of total deposits. Migration to wakala deposits was apparent during the quarter, reflecting the current global rate scenario. The wakala portfolio - investment deposits - was up 6 per cent year-to-date, representing a higher share of 60 per cent of total deposits versus 56 per cent in 2022.
Despite the stellar numbers, year-to-date, DIB stock is down by 6.5 per cent at Dh5.33. However, the SPDR S&P BANK ETF, which tracks the US financial sector, is down by over 18 per cent YTD. The relative outperformance of the DIB stock reflects the banking sector’s resilience in the UAE despite global challenges.
Overall, DIB’s strong financial results for the first quarter of 2023 reflect the bank’s ability to maintain momentum. The bank’s prudent approach to risk management, investment in highly rated sovereign sukuk instruments, and steady growth in its balance-sheet, and rising profitability levels position it well.