DIB told to reduce dividend by a third

Dubai Islamic Bank generated profits of Dh1 billion (US$2722m) last year, an 88.8 per cent increase on the same period a year earlier after income from that year was restated. Ryan Carter / The National

Dubai Islamic Bank has cut its dividend by a third - to 10 per cent - after the Central Bank denied approval for its payout to shareholders.

The regulator gave no reason why it had advised Dubai Islamic Bank (DIB) to cut its dividend, said Kashif Moosa, the bank's head of investor relations. "In any case, it was subject to Central Bank approval."

In a statement to the Nasdaq Dubai, DIB said that "as advised by the Central Bank, the proposed dividend distribution of Dubai Islamic Bank would be 10 per cent instead of 15 per cent".

The bank's shares fell 1.3 per cent to Dh2.19 each in trading following the announcement.

Banks had previously been ordered to cap payouts to shareholders at 50 per cent of their net profits from 2009. DIB's original 15 per cent proposal would have breached this limit, but Mr Moosa said the cap was no longer in force. The Central Bank declined to comment on DIB.

The Dubai lender generated profits of Dh1 billion (US$2722m) last year, an 88.8 per cent increase on the same period a year earlier after income from that year was restated.

Last year, a consultation with the IMF recommended the UAE rein in dividend payments in its banking sector to prevent difficulties in managing the after-effects of Dubai's debt crisis.

"The Central Bank should continue to contain banks' dividend distribution over the next few years to ensure that the banks can handle this risk without new government support," the IMF said in its report. "The [Central Bank] could link its approval of dividend distribution to the results of stress tests."

Some analysts raised concerns about the strength of DIB's balance sheet, which was impacted by the acquisition of a controlling stake in Tamweel, an Islamic mortgage provider, in 2010.

"They're tight on liquidity," said one analyst, who asked not to be named. "They have a huge real estate book, which is still not impaired."

The bank's Tier One capital ratio of 13.9 per cent compares with the Central Bank's regulatory minimum of 12 per cent.

DIB was forced to absorb Tamweel during 2010, paying Dh374.7m for a controlling stake in the company. Tamweel ceased trading at the onset of the global financial crisis after its liquidity abruptly dried up, and an aborted merger with Amlak Finance left the company's shares frozen for almost three years.

Bank dividends have been drawn into sharp focus among investors this year, as stronger banks in Abu Dhabi have announced increasingly generous payouts on the back of strong profits.

Dubai banks, constrained by weak earnings, have found it more difficult to do so.

First Gulf Bank announced a 100 per cent cash dividend to shareholders, equivalent to Dh1.5bn of its profits for the year, alongside distribution of one bonus share for every share currently held.

National Bank of Abu Dhabi declared a 30 per cent cash dividend alongside a 30 per cent issuance of bonus shares.

Abu Dhabi Commercial Bank, meanwhile, announced its first dividend since 2008, paying a 20 per cent cash dividend to shareholders.

With most banks having rebuilt their capital adequacy ratios after the crisis, many could now afford higher payouts, said Raj Madha, a financial analyst at Rasmala Investment Bank.

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