Boost for Tamweel and Amlak

The UAE's two largest mortgage providers report results for the first quarter of the year that were better than expected, but shed no more light on a long-awaited merger.

Amlak along with Tamweel is estimated to hold more than half of the value of all mortgages in the UAE.

Amlak and Tamweel, the UAE's two largest mortgage providers, yesterday reported results for the first quarter of the year that were better than expected, but shed no more light on a long-awaited merger. Tamweel said it made Dh5.1 million (US$1.3m) in the March quarter. Amlak announced a loss of Dh2.7m for the same period on the website of the Dubai Financial Market, where both companies are listed.

Neither of the companies, which have been in stalled merger talks since 2008, released a management statement about its results and their representatives could not be reached for comment. The performances were far more buoyant than in the first quarter of last year, when Tamweel and Amlak suffered millions of dirhams of losses amid sharp falls in Dubai property prices. The first quarter of this year was Tamweel's second profitable quarter in a row, after an Dh11m profit for the final three months of last year. Amlak lost Dh650,000 in the same quarter.

Analysts say the results underscore the resilience of Tamweel's loan portfolio in a period when house prices declined by half in some parts of Dubai. Khalid Howladar, a vice president at Moody's Investors Service, said initial fears of a wave of defaults by expatriate customers who owed more than their properties were worth proved unfounded. "In other countries and especially in the US, people are in negative equity because their loans are far in excess of the value of their property," Mr Howladar said. "People were thinking could that happen here, because this is not the home country of most people here.

"One scenario was a massive exodus of people defaulting on their mortgages, but that was counterbalanced by people having jobs here and families here, so it's not that easy just to walk away as some people were hypothesising." Amlak and Tamweel, which are estimated to hold more than half of the value of all mortgages in the UAE, stopped making loans at the end of 2008. Both had relied heavily on interbank loans to fund their mortgages, a dependence exposed as problematic when crisis-hit banks limited their lending as a result of the global financial crisis.

An Amlak-Tamweel merger was soon proposed, led by a committee formed within the Ministry of Finance. Trading in the companies' shares was halted and several solutions were advanced over the ensuing months, which included combining Amlak and Tamweel with a pair of banks owned by the Federal Government and the creation of a Federal body to buy up their mortgages. Those ideas were ultimately scrapped because of the high costs involved.

Sources at the companies now say a merger is unlikely and that Amlak and Tamweel may be absorbed by established banks. Dubai Islamic Bank, which started Tamweel in 2003 in conjunction with the Dubai World investment unit Istithmar, recently said it was considering increasing its stake in the lender in what might be a first step towards a full takeover. The bank holds about 20 per cent of Tamweel. Meanwhile, brokers say customers of the companies are already beginning to refinance their loans and move to other banks.

A mortgage broker at John Charcol in Dubai said many customers had been taking up mortgage offers with low interest rates from Dubai Islamic Bank and the Dubai-based Mashreqbank ,after Amlak and Tamweel sent a letter to customers this year saying they would waive refinancing penalties. With some customers paying off their mortgages and moving away, Amlak and Tamweel saw the value of their loans slide in the first quarter, according to their financial statements.

Amlak's total loans declined by Dh318m to Dh8.7 billion. The value of Tamweel's loans fell by Dh483m to Dh9.95bn. [e-mail]