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Tue 29 Apr 2008 06:08 PM

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Increased lending boosts Dubai Islamic profit

Bank sees Q1 profit rises 31% to $151.4mn, helped by lending to UAE's realty sector.

Dubai Islamic Bank (DIB), the Gulf's third-largest bank that complies with Islamic law, said first-quarter profit rose 31% after lending more, especially to the UAE's booming realty sector.

Net income in the three months to March 31 rose to 556 million dirhams ($151.4 million), compared with 424 million dirhams in the year-earlier period, the Dubai-government affiliate said in a statement, without making clear whether that was after depositors' share.

Financing and investment activities jumped 29% to 43.2 billion dirhams, and total assets 24% to 85.1 billion dirhams, the bank said.

"During the same period, for example, the bank financed new projects in the contracting sector worth 12 billion dirhams, demonstrating DIB's leading position in the vital real estate sector," Mohammed Al-Shaibani, Dubai Islamic's chairman, said in the statement.

Cairo-based investment bank EFG-Hermes and Dubai-based Shuaa Capital had expected Dubai Islamic to make a profit of 521 million dirhams and 565 million dirhams, respectively.

Demand for financial services that comply with Islamic law, including a ban on the receipt of interest, is growing as the world's 1.3 billion Muslims seek to adhere more with their religious beliefs, and record oil prices fuel economic growth in the Gulf.

Among other tenets, Islam equates interest with usury, and instead encourages banks to share in the profit or loss of investors. Interest paid to depositors, for instance, is instead called profit.

Globally, Islamic banks controlled assets worth about $750 billion at the end of 2006, a figure which may rise to more than $1 trillion by 2010 as the industry expands, said US management consultants McKinsey & Company.

Last month, investors offered $13.1 billion, or almost 86 times more than was sought, towards the initial public offering (IPO) of Ajman Bank, the UAE's seventh-largest Islamic lender. RELATED: Ajman to raise $149mn in IPO to create Islamic lender

It was the most heavily oversubscribed IPO in the UAE, the second-largest Arab economy, since the government of Dubai offered shares in a public and private sale of Dubai Financial Market Company in 2006.

UAE bank assets that comply with Islamic law account for about 15% of total industry assets, Ajman Bank Chief Executive Yousif Khalaf said in February.

Still, shares of Dubai Islamic have been among the poorer performances of publicly listed sharia-compliant lenders in the Gulf, down about 0.5% this year, compared with gains for rivals such as Abu Dhabi Islamic Bank and Qatar Islamic Bank. Saudi Arabia's Al-Rajhi Bank is down 29%. (Reuters)

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