Wednesday, July 15, 2009

Ithmaar Bank sees net profit plunge 88% amid global slowdown

Established in 1984, Ithmaar Bank (Ithmaar) is a regional banking and financial services group, whose services include investments, private, retail & commercial banking, private equity, Islamic insurance & assurance, equipment leasing and real estate development.
It has an operational presence and investments across the MENA and Asian region. Moreover, in a view to broaden its GCC presence, Ithmaar was also cross listed on the Kuwait Stock Exchange in 2008.
During 1Q09, Ithmaar’s net profit plunged 88% to US$3.83 million (RM13.71 million) from US$32.01 million in 1Q08 on falling operating income, rising impairment provisions and 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 non-interest 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% qo-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 wellsupported by the regulator, which encourages innovation while providing sound regulatory framework.
Moreover, Fitch expects the writedowns would continue to impact across the Bahraini retail and wholesale banking sectors along with an "adequate" profitability for 2009. Background Ithmaar was established in Bahrain on Aug 13, 1984, as Faysal Investment Bank of Bahrain EC (Fibec).
Until 2003, Fibec was a wholly-owned subsidiary of Shamil Bank (Shamil) with a Shariah-complaint investment banking licence granted by the Bahrain Monetary Agency (BMA).
In 2003, Shamil sold Fibec to Dar al-Maal al-Islami Trust (DMI) and then DMI changed its name from Fibec to Ithmaar Bank. The bank went public in 2006 and got listed on Bahrain Stock Exchange.
Moreover, with an aim to expand its GCC presence, Ithmaar is now cross listed on the Kuwait Stock Exchange in 2008. During 2003, with the acquisition of certain investments from DMI for US$46 million, Ithmaar indirectly acquired a 49% and 28% interest in Faisal Finance (Switzerland) SA and Faysal Bank Limited of Pakistan, respectively.
Moreover, in the same year, it purchased a 40% stake in Solidarity Company BSC for a total consideration of US$40 million and a 23% stake in Faisal Islamic Bank of Egypt for US$34 million from DMI. Ithmaar acquired Shamil in two parts — a 60% stake was acquired in 2006 in consideration of 100% shareholding in the Islamic Investment Company of the Gulf (IICG) Bahamas to DMI, and in 2007, it bought the remaining 40% with share swap ratio of 12:10.

-- Extracts from Bahrain-based Taib Research

(This story appeared in The Malaysian Reserve on July 13, 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)

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