Bahrain’s Ithmaar Bank sees 1Q net profit plunge 88%

Established in 1984, Ithmaar Bank (Ithmaar) is a regional banking and financial services group, whose services include investments, private, retail and commercial banking, private equity, Islamic insurance and assurance, equipment leasing and real estate development. It has an operational presence and investments across Mena and Asia.
Moreover, in a view to broaden its GCC presence, Ithmaar is also cross listed on the Kuwait Stock Exchange in 2008. During 1Q09, Ithmaar’s net profit plunged 88% to US$3.83 million (RM13.34 million) from US$32.01 million in 1Q08 on falling operating income, rising impairment provisions and a foreign currency translation loss. The bank’s total operating income declined 51.1% to US$49.26 million in 1Q09 from US$100.76 million in 1Q08 on falling interest rate and noninterest incomes. Its annualised net interest margin and net spread decreased 260 bps and 120 bps to 1.1% and 2.4% in 1Q09, respectively. As a result, net interest income plummeted 58.2% to US$9.39 million in 1Q09. Moreover, fees and commission income and income from fund management and services fell 20.2% and 54.5% to US$7.55 million and US$2.19 million in 1Q09, respectively. Income from investment properties was lower by 60.4% q-o-q at US$24.46 million from US$61.74 million q-o-q. However, the bank reported a trading income of US$1.82 million as against a trading loss of US$0.25 million in 1Q08. On the expenses side, its operating expenses decreased 21.8% to US$31.85 million on account of a 20.5% decline in staff costs and a 39.6% fall in general and administrative expenses, countered by a 14.4% increase in depreciation and amortisation expenses. However, share of profit of associated companies rose to US$9 million from US$0.67 million during the same quarter of the last year on the increase in its total associates. Outlook and Valuation Driven by the ongoing financial crisis and subsequent global economic slowdown, consolidated balance sheet of wholesale banks witnessed a negative growth of 3.8% to reach US$188.9 billion in 2008. This negative growth has continued and assets have further declined to US$179.9 billion in 1Q09. However, the industry is well supported by the regulator, which encourages innovation while providing sound regulatory framework. Moreover, Fitch expects writedowns will continue to impact across the Bahraini retail and wholesale banking sectors along with an "adequate" profitability for 2009.
(Extracted from a equity research note issued by Taib Research in May 2009)

(This story appeared in The Malaysian Reserve on June 1, 2009. The Malaysian Reserve is a daily business/finance newspaper published out of Kuala Lumpur, with a sectoral page on Islamic finance on Mondays, edited by Habhajan Singh)