Dubai Islamic Bank (DIB) says it will transfer most of its mortgage activity to Tamweel after taking a majority stake in the Islamic home finance company.
The move comes as the mortgage company resumes lending for the first time in two years.
"They are channelling most of their mortgage business to Tamweel as a subsidiary," said Sheikh Khaled bin Zayed Al Nehayan, the departing Tamweel chairman, in an interview in Dubai.
Sheikh Khaled is stepping down from his position as the chairman of the company. He also sits on the board of DIB, a position he does not plan to relinquish, and is the chairman of Salama, an Islamic insurance company, and the Bin Zayed Group, a family conglomerate, along with several other positions.
"It's a subsidiary, so now you need people from the management [of DIB on the board] to make sure there is efficiency to add value and utilise the IT and the back office of DIB," Sheikh Khaled said.
Tamweel, the UAE's second-largest Islamic mortgage company, froze lending two years ago after Dubai's property bubble burst and its funding model cracked under the stress of the financial crisis.
The company's fate has been closely watched as an indicator of Dubai's emergence from the crisis following the agreement last month between Dubai World and its creditors to restructure US$24.9 billion (Dh91.45bn) of debt.
Tamweel started doing business again shortly after DIB, which helped found the company in 2004, raised its stake to 57.3 per cent in September and began pumping in money.
DIB is putting Dh100 million into Tamweel every month to finance home purchases through vehicles that comply with Islamic law's prohibition on charging interest, Sheikh Khaled said. Analysts and mortgage brokers have said they do not expect the resumption of lending at Tamweel to provide a significant boost to Dubai's property market, although any extra financing capacity would be welcome in a market where prices have halved, on average, since the peak in 2008.
Tamweel was providing between Dh500m and Dh700m of financing every month during Dubai's property boom in 2008, Wasim Saifi, the Tamweel chief executive, told Bloomberg earlier this week.
"If we do Dh100m a month now, it would be a respectable number in the current market," Mr Saifi said.
A new board for Tamweel would inject new life into the company and position it to reduce costs and return to growth, Sheikh Khaled said.
"We'd like to see more profitability and that can only be achieved by reducing some of the costs and getting more business," he said.
Shares in Tamweel, which is listed on the Dubai Financial Market (DFM), have been suspended since November 2008, when a government-led panel began to contemplate a merger with Amlak Finance, the country's other major Islamic home financier.
Despite numerous attempts at a resolution, that plan fell apart when DIB raised its stake in Tamweel by buying 339.3 million shares from Istithmar World, Dubai Capital Group and the DFM.
Trading in Tamweel shares should start again soon, Sheikh Khaled said, but the timing would be up to the company's new board of directors.
That new board would help integrate DIB's mortgage division with Tamweel's, effectively making Tamweel an Islamic mortgage-financing arm of DIB, he said.
"You need people who are going to be working on how to streamline the business with DIB," he said.
Tamweel's board is set to meet tomorrow to discuss the appointment of new members and approve financial statements for 2008 and last year.