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Monday, 5 May 2014

Reoriented Dubai Islamic Bank ready for a new phase of balance sheet growth

Dubai:Dubai Islamic Bank (DIB), the largest Islamic bank in the UAE by assets, has completed a five-year consolidation from 2009 to 2013 and has charted a plan for strong balance sheet growth in 2014-16 period.
“With a stronger balance sheet, improved asset quality,sharply focused business plan, decline in non-performing loan (NPL) growth, better capitalisation levels, reduced costs and a strong low cost funding base, today we are in a position to achieve our growth targets,” said Dr. Adnan Chilwan, CEO of DIB, after announcing the bank’s first quarter results last week.
DIB’s first quarter figures vouch for its growth momentum. While the bank reported a 111 per cent increase in net profit to Dh636.6 million in the first quarter of 2014, the bank’s total assets increased by 6.9 per cent to Dh121.1 billion from the end of 2013.
Key themes for this year are to grow both consumer and wholesale banking business achieving return on assets of about 1.7 per cent with a return on equity of 15 to 17 per cent. Improved profitability is targeted through growth in financing book and redeployment of liquidity from low earning assets to higher earning assets.
The bank has started the year in full alignment with its growth plans for the next three years. In the first quarter of the year DIB’s net funded income margins grew by 3.3 per cent against a target of 3.25 per cent, return on assets were up at 2.2 per cent on rise in overall income, while return on equity exceed the earlier guidance of 15 to 17 per cent.
The bank’s net financing assets grew 6.8 per cent to Dh59.9 billion at the end of the first quarter of 2014 compared to Dh56.1 billion at December 31, 2013.
“Overall credit has grown significantly during the first quarter of 2014 outpacing the market. We expect the trend to continue for the rest of the year,” said Dr Chilwan.
The bank’s consumer banking assets reported a consistent increase by 4 per cent to Dh27.3 billion compared with Dh26.2 billion at December 31, 2013. Corporate banking assets have also grown significantly by 9 per cent to Dh37.4 billion.
“Loan book adding 7 per cent quarter on quarter is fastest among peer group. This uptake has been driven by robust growth within the retail segment and corporate banking as the bank re-gears its balance sheet away from commercial real estate. We expect credit growth to remain buoyant over the coming quarters and pencil in a 12 per cent loan book expansion for 2014.” Shuaa Capital wrote in a note.
Impairment losses have declined by 45.8 per cent to Dh195 million in the first quarter of 2014 compared with Dh360 million in the same period last year. Non-performing assets have shown a consistent decline with NPL ratio improving to 10.3 per cent in the first quarter of 2014 compared to 11.1 per cent at the end of 2013. Impaired financing ratio also improved to 8.4 per cent in the first quarter of 2014 from 8.8 per cent at the end of 2013. Provision coverage improved to nearly 67.4 per cent at the end of the first quarter of this year compared to 64 per cent at the end of 2013. The overall coverage continues to improve as collateral values get a boost due to positive performance in the Dubai markets.
“Our asset quality continued to improve leading to a sustained decline in non-performing financing. The reduction is mainly due to full or partial settlement of exposures coupled with increase in overall financing portfolio. Clearly we have exceeded our targets,” Dr. Chilwan said.
Customers’ deposits as of March 31, 2014 increased by 8.9 per cent to Dh86.1 billion from Dh79.1 billion as of December 31, 2013. The customer deposits have grown largely due to increase in CASA [current and savings account] which now comprise 46 per cent of total deposits.
Strong financing growth coupled with relatively low cost funding has boosted the bank’s margins in the first quarter with net funded income margin improving to 3.3 from 3 per cent in the same period in 2013.
(Gulfnews.Com / 04 May 2014)
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Does Islamic Finance & Halal have a Value Proposition?

Today’s social media connected world is driving a whole new set of behaviours for people. Prime amongst them is the way how people are looking, engaging and interacting with businesses.
This has important learnings for all sectors of industry today and especially for the industry captains leading the charge.
Heard the refrain—“garbage in, garbage out”? Well that used to be a mantra in the tech industry when technological changes were rapid. The changes took time to catch on simply because people adapt at different speeds. But businesses adapting and using new technology knew if they continued to use the new technology with the old processes the results weren’t going to be different from the past. This change brought about many innovations within business processes across industries.
SEE ALSO:  Dubai setup Watchdog for Islamic Financial Products
SEE ALSO:  Halal World Food Exhibition to propel Dubai’s Islamic Economy Capital Vision

Today given the changes in behaviour of people, resulting from the various crisis of the past decade, not taking these behaviour changes into account in doing business is akin to being an ostrich and burying one’s head in the sand!
The golden twins of the Islamic economy—Islamic Finance & Halal—are not exempted from these behaviourial changes. Not recognizing them and not factoring its impact on business can have disastrous consequences in the future.
How does it impact Islamic finance & Halal?
That’s where the impact has happened.
Halal & Islamic Finance industries, or borrowing a phrase from Dr. Jonathan A J Wilson the ‘Meat & Money’ industries, have been product-centric.
Islamic Finance has been a product-centric purely due to the business model it has followed. With corporate finance being the focus, primary business is between two organisations. Organisations drive business amongst themselves with the single-minded objective of making profit. It’s a business process that simply looks at two organisations doing a deal (read ‘money’). The people part is totally missing. This comes about from yesteryear’s business management techniques where the concept was to have a superior product. Once you have that, the product is supposed to sell itself simply by virtue of its superiority over other similar products. This mind-set is what drove and is still driving the corporate finance side of Islamic Finance and it’s why we do not see the retail side garnering strength or being able to come forth with innovative products.
On the Halal side, the focus has been on food (read ‘meat’) and on the process through which the food is processed. That process has a generic certification– ‘halal’. In the past decade there has been increasing demand for other areas—travel, hospitality, fashion, pharma—to name a few, which need halal certification. But a global or regional certification standard is still at a debate stage.
SEE ALSO:  Dubai to set up Framework for Promoting Islamic Economy
SEE ALSO:  Dubai Launches Center for Islamic Banking and Finance

Bottom-line is that both these powerhouses of the Islamic economy are yet to put people in the forefront of their business operations.
We are yet to see a business approach that clearly details the value proposition for the people involved with it i.e. its staff, customers, and partners. Business objectives are still coming from a product-centric basis and not from a deep understanding of the people and their behaviour and their actual needs.
Can this be done?
Yes! Even in a B2B scenario, it is important to keep in mind, that people representing the organisations are involved in the purchase decision making process.
This is the critical point where it’s absolutely necessary to look at proper leadership and competency alignment for the organisation and its staff. Without this alignment the displayed business behaviour and key brand messages would not be in synchrony. Without this synchrony it would not be possible to communicate transparently a clearly defined value benefit to the recipient. Without a clearly defined value benefit it would not be possible to develop trust which in turn would lead to the sale.

(Arabian Gazette / 03 May 2014)
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