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Finance & Banking | Global Arab Network
UAE: Sharjah Islamic Bank ratings reflect solid capital and good liquidity
Global Arab Network - Dina James
UAE - Capital Intelligence (CI), the international credit rating agency, today announced that it has affirmed the Foreign Currency ratings of Sharjah Islamic Bank (SIB) at A- long-term and A2 short-term with a Stable Outlook and a Support rating of 2 . The ratings are strongly underpinned by the support of the federal government and the government of Sharjah's ownership of the Bank. The Financial Strength rating is maintained at BBB+; the ratings take into account the Bank's very solid capital adequacy ratio and good liquidity. Although core earnings declined in Q1 2010, SIB has taken steps to protect its capital and strengthen its financial position by improving the quality of its earnings. The outlook for the Financial Strength rating is therefore Stable.

SIB's profitability ratios declined in 2009 and in Q1 2010 due to lower business volumes resulting from tighter credit norms and the Bank's very cautious outlook. Moreover, the Bank's overall liquidity and its exposure to the local government increased, both having the effect of lowering yields. Both operating profitability and return on average assets fell last year, but the Bank believes that the quality of its earnings has improved and that provisioning requirements will be low in the immediate future. SIB has projected a modest increase in net profit this year on the back of increased recoveries as well as of net gains from the sale of investment properties.

Liquidity ratios improved last year with the decline in Islamic finance facilities (IFFs) and the growth in customer deposits. As an Islamic bank with a high level of real estate exposures, the Bank has significant asset/liability maturity mismatches on its balance sheet. However, SIB has substantial deposits from the local government, and a sizeable portion of its demand balances tend to be stable over the longer term. The Bank's large capital provides additional safeguards. The availability of central bank liquidity support is a mitigating factor as well.

Asset quality ratios were adversely affected by the economic downturn. However, NPIFFs continued to represent a very low proportion of gross IFFs. There was a substantial increase in renegotiated IFFs. These were mainly real estate financings where repayments were tied to rental income. The decline in rentals last year led to the extension of tenors. Restructured exposures have performed well so far with no classifications. The restructuring of credit did not affect yields but it did increase credit and liquidity risks by lengthening the maturity of the Bank's financing portfolio. However, the exposures are very well collateralised.

SIB is a full-fledged Islamic bank. It is regarded as the national bank of its emirate of incorporation and has a close relationship with the local government. Its core businesses are corporate, retail and investments. Subsidiary businesses, which include brokerage and hotel management companies, also make small contributions. SIB was one of the first to introduce many Shari'a-compliant retail products in the UAE. The Bank currently operates 23 branches and 100 ATMs and has a presence in all the emirates. It is well represented in Sharjah, where it has 11 branches.

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