Fitch Ratings said on Wednesday that UAE-based Sharjah Islamic Bank (SIB) had performed well through the global economic crisis, but its high exposure to real estate could still be problematic.
The agency affirmed a long-term foreign currency issuer default rating (IDR) of BBB+ with a stable outlook, short-term IDR of F2, individual rating of C/D, support rating of 2 and support rating floor of BBB+.
"Overall, SIB performed well through the crisis," said Mahin Dissanayake, director in Fitch's Financial Institutions team in Dubai.
"Healthy core earnings have compensated for declining fair value gains on property investments and still high operating costs."
The bank has also benefited from fairly low impairment charges due to relatively few problems in its financing and leasing book. Its impaired financing ratio was a low 2.7 percent at end-Q1 this year, Fitch added.
Fitch added that its main credit concerns arose from SIB's high single name and sector concentrations in financing and leasing.
"As is typical for the asset backed nature of Islamic financing, SIB has a high exposure to UAE real estate, a sector for which Fitch maintains a negative outlook," Fitch said.
SIB's net profit increased by four percent to AED69.7m for Q1 due to higher business volumes, reflecting the bank's strategic focus on expansion.
However, Fitch said it was concerned that new Central Bank of the UAE regulations on consumer lending (around 30 percent of SIB's financing book) could affect the bank's future earnings.
Predominantly funded by low cost and stable customer deposits, SIB's has a healthy funding and liquidity position. SIB also has exceptionally strong capitalisation, with a Fitch core capital ratio of 37 percent at end-2010, one of the highest in the UAE, Fitch added.
SIB is one of four banks incorporated in the emirate of Sharjah. At end-2010, it held a modest one percent of UAE banking system assets.