By Saifur Rahman
Dubai Islamic Bank (DIB), the UAE’s first and largest Islamic lender, said, is set to acquire Noor Bank, enhancing Dubai’s position as the capital of Islamic economy and creating the region’s most powerful Shari’a banking group. The combined asset value is set to reach Dh275 billion post acquisition, it said.
“The Board of Directors of Dubai Islamic Bank convened its meeting on 09/06/2019 and resolved to recommend to the General Meeting of the Bank’s shareholders to consider the acquisition of 100 percent shares of Noor Bank after obtaining all necessary approvals from the competent regulatory authorities, and taking all legal procedures related to the evaluation as per the Commercial Companies Law. Post the completion of the acquisition, Noor Bank’s operations will be integrated and consolidated within DIB,” a statement said.
“The date and agenda for the General Meeting including the terms and details pertaining to the acquisition will be announced after the same has been approved by competent regulatory authorities. With the planned acquisition, DIB is set to consolidate its position as the one of the largest Islamic banks in the world with combined assets of nearly Dh275 billion,” it said.
Islamic banking sector represents a fifth of the UAE banking assets and continues to gain traction in the UAE market, going from a single-digit market share to over 20 per cent and growing.
“In the last 12 months, conventional banks’ total assets saw a growth rate of 4-4.5 per cent while Islamic players have been growing at 7 per cent,” said a report. “The UAE remains a promising avenue for the growth of Islamic banking and finance, particularly given the substantial market share held by Islamic lenders in other core markets. For instance, in Malaysia, the share of Islamic banking is about 25-26 per cent, and in Kuwait it is about 40 per cent. This figure becomes significantly higher in Saudi Arabia at upwards of 50 per cent,” it said.
In the UAE, Islamic banking penetration is expected to cross 25 per cent in coming years. UAE banks’ lending of personal loans to residents declined in the first quarter of 2019 by 0.9 per cent on year-on-year basis and 1.2 per cent quarter-on-quarter, due to weak consumer demand and soft household sentiment. According to the Central Bank of the UAE’s first-quarter data, personal loans to residents dropped to Dh333.5 billion in the January-March quarter compared to Dh336.5 billion in same period last year. Year-on-year gross credit rose 4.2 per cent to Dh1.675 trillion from Dh1.608 trillion.
The widely expected acquisition move comes as the UAE economy experiences a challenging phase and technological disruption in the financial sector. A number of banks are set to merge as consolidation moves gain momentum, as banks are preparing for the Fourth Industrial Revolution that could result in ‘Branchless’ and ‘Faceless’ banking.
“A sharp deepening in the real estate downturn and weakening asset quality could constrain bank lending, which in turn could hold back the recovery,” the International Monetary Fund (IMF) said in its annual report on UAE economy recently. “If not designed and implemented effectively, stimulus measures could have a lower than-expected impact on non-oil growth.”
IMF said it strongly supported measures such as UAE Central Bank’s efforts to enforce prudential norms (including for single borrower and sectoral exposures) by requiring banks to strengthen provisioning and/or capital, and to limit dividend distribution, and the Central Bank’s plans to move to risk-based supervision in 2019. Collaboration between bank supervisors and the Financial Stability Department has also strengthened to enhance stress-testing and better identify pockets of vulnerability and emerging risks, including from GREs.
IMF said, “These efforts and recommended designing sufficiently stringent stress-testing scenarios, including for GREs, and following up with banks on stress-testing results. Given the risk of spill-overs from declining real estate prices,” IMF urged the “UAE Central Bank to resist calls for relaxing prudential limits on real estate lending. The authorities are preparing to develop a new bank resolution regime.”
In the meantime, IMF encouraged the UAE Central Bank to discuss contingency plans for banks in case of an abrupt tightening of financial conditions or other adverse shocks.
The UAE is recognized as sitting at the epicenter of the Islamic economy and this announcement, in addition to supporting the nation’s economic agenda, will further strengthen Dubai’s role as a global hub for Islamic finance, allowing greater investment and growth in key sectors driving Dubai and the UAE.
The acquisition of Noor Bank further cements DIB’s position as one of the largest and most influential Islamic finance institutions globally, with a long-established track record of financial success, a clearly defined strategy and a robust balance sheet. Whilst Islamic finance has continued to grow at an unprecedented pace, DIB’s organic and inorganic growth strategy will remain aligned to greater innovation and progression of this already fast growing business model.
Cost efficiencies, as a result, of the acquisition are expected to contribute to profitability and allow the bank to capitalize on more competitively priced products and services across an increasingly diversified portfolio. Similarly opportunities to drive innovation and accelerate the Group’s digitization program are also expected.
DIB remains amongst the fastest growing financial institutions in the country and one of the most progressive Islamic banks in the world. To continue this meticulously articulated profitable growth strategy, requires scale and associated economies. The new size and scale will allow DIB to expedite its strategy to connect the dots from Far east, sub-continent, and East Africa with Dubai as the hub with new markets and locations opening up for one of the most powerful Islamic bank in the world.
Established in 1975, Dubai Islamic Bank is the largest Islamic bank in the UAE by assets and a public joint stock company listed on the Dubai Financial Market. Spearheading the evolution of the global Islamic finance industry, DIB is also the world’s first full service Islamic bank and the second largest Islamic bank in the world. With Group assets in excess of US$60 biillion and market capitalization of nearly US$ 9billion, the group operates with a workforce of more than 8,000 employees and around 500 branches in its vast global network across the Middle East, Asia and Africa. Serving over 3 million customers across the Group, DIB offers an increasing range of innovative Shariah compliant products and services to retail, corporate and institutional clients.
DIB has a significant international presence as a torchbearer in promoting Shari’ah-compliant financial services across a number of markets worldwide. The bank has established DIB Pakistan Limited, a wholly owned subsidiary which is the first Islamic bank in Pakistan to offer Priority & Platinum Banking, as well as the most extensive and innovative portfolio of Alternate Distribution Channels. The launch of Panin Dubai Syariah Bank in Indonesia early in 2017 marks DIB’s first foray in the Far East, the bank owns a nearly 40 percent stake in the Indonesian bank.
Additionally, in May 2017, Dubai Islamic Bank PJSC was given the license by the Central Bank of Kenya (CBK) to operate its subsidiary, DIB Kenya Ltd. DIB has been designated as D-SIB (Domestic Systemically Important Bank) in 2017 and was also recently upgraded by international agencies with regards to the bank’s credit rating indicating robust capital position, improving asset quality and strong profitability.
Also published on Medium.