Soaring profits, a spree of headline-grabbing deals and retail expansion. These are just some of Dubai Islamic Bank’s (DIB) successes over the last year. As the third-largest Islamic lender in the Gulf, it is well on the way to becoming the lead player in the world’s fastest growing financial services sector, not only channelling local wealth across the globe, but also developing projects in Dubai itself. By arranging Islamic loans and bonds for firms to finance acquisitions and infrastructure projects in UAE, the bank represents a new era of Gulf capital staying domestic, and is pioneering the region’s efforts to diversify its economy.
The oldest Islamic bank has now built a solid franchise, with its net profit up 117% in the first half of the year on the back of last year’s 43% growth in customer deposits and 50% expansion in assets. Not content to be the most profitable bank in the UAE, it is aggressively expanding in the region, aiming to more than double its branch network to 100 by mid-2008, including new outlets in Saudi Arabia and Qatar.
Wasim Saifi, executive vice-president of retail and business banking at DIB, believes this advance will prove successful despite strong competition from western rivals. “Competition in the banking sector is mainly based on pricing, especially in western markets, where the cost of financing is a key determinant of attracting investors and depositors. But Islamic banks, especially DIB, have clearly proved their ability to provide price structures that compete with conventional banks,” he tells Emerging Markets.
Over the last year, DIB has also pioneered innovative and diverse sharia-compliant investments, including a structured finance product for retail investors in real estate launched in December. In June this year, DIB broke new ground by establishing the first investment scheme linked to hedge fund performance, opening up the $2 trillion industry to Islamic investors.
And its blockbuster deals have commanded attention. It lead-managed property firm Nakheel Group’s $3.52 billion convertible sukuk in December 2006, which was the largest Islamic bond issue to date, and it was also bookrunner for the June 2007 two-tranche, $3.25 billion issue by Dubai port operator DP World, which included the largest 30-year tranche ($1.75 billion) ever launched from the Gulf. In the process, it has become one of the top five sukuk managers in the world.
Saifi explains that these efforts are part of the bank’s strategy to lower its real estate exposure as a proportion of assets, a pre-emptive defence against a potential correction in local market prices. “The bank takes its risk management function very seriously, and has worked hard to establish an extremely diverse portfolio. So while we believe that there will remain a demand-supply imbalance in the property market, including both residential and commercial, for at least the medium term, we are very careful.”