Bank of Sharjah today announced its financial results for the six months ending June 30, 2011, demonstrating the bank’s underlying strength and prudent business model.
The bank’s total assets as of June 30, 2011, reached AED 21.3 billion compared to AED 18.7 billion at the end of the same period in 2010, an increase of 13 per cent. As of June 30, 2011, the bank’s total deposits stood at AED 15.4 billion compared to AED 13.4 billion as of the same period in 2010, an increase of 15 per cent. As of June 30, 2011, the bank’s loans and advances stood at AED 12.6 billion compared to AED 11.9 billion in the same period of 2010, an increase of 6 per centز
The increase in deposits over loans and advances significantly enhanced the bank’s loans-to-deposits ratio which further reduced during the period to reach 0.82 in June 2011 from 0.89 in June 2010.
Compared to the corresponding period of 2010, net liquidity surged by 73 per cent in the first half of 2011. As of June 30, 2011, the bank’s net liquidity stood at AED 5 billion versus AED 2.9 billion in the corresponding period of 2010. This improvement in liquidity, which was driven by the 15 per cent increase in deposits, led to the 12 per cent drop in net interest income, due to the depressed interbank interest rates.
Net profit for the first half of 2011 reached AED 152 million compared to AED 276 million in the corresponding period of 2010. The decrease in the current period was mainly caused by an increase in the collective impairment provisions. In view of the slower than expected recovery in the U.A.E economy, and because of the new risk classification measures introduced by the U.A.E Central Bank, Bank of Sharjah constituted a further AED 70 million of collective impairment provisions during the second quarter of 2011. As of June 30, 2011, the bank’s collective impairment provisions reached AED 432 million, of which AED 90 million were constituted during the first half of 2011 versus nil in the first half of 2010, which caused the 45 per cent decline in the current year net income. This in turn led to the drop in the earnings per share figure.
Total comprehensive income reached AED 162 million compared with AED 231 million for the corresponding 2010 period, bringing the decline in the current period earnings to 30 per cent instead of 45 per cent. This was due to better performance of the investment portfolio during the second quarter of 2011 where the results were reflected in comprehensive income as a result of the early adoption of the IFRS 9 at the end of 2010.
In the second quarter of 2011, net interest income registered a 5 per cent increase over the first quarter of 2011 despite the 5 per cent increase in customer deposits during the second quarter, due to the reduction of interest rates on these deposits during this period. Also non-interest income more than doubled during the second quarter of 2011 due to higher dividends received during this period. This led to the 37 per cent increase in operating income before impairment charges.
Capital Intelligence, the international credit rating agency, has recently reaffirmed Bank of Sharjah’s Long-term Issuer Default Rating at ‘A-’ with a stable outlook. The firm attributed the Bank’s individual rating to its good management, strong capital adequacy, sound asset quality, and good profitability.
Mr. Varouj Nerguizian, Executive Director and General Manager at Bank of Sharjah, said: “The political unrest which erupted in the MENA region at the beginning of the year continued to negatively impact the regional financial markets and economies. This, coupled with the sovereign debt crisis, has revived concerns over global recovery which in turn resulted in a slower than expected recovery of the U.A.E economy. This could prove challenging to the banking industry in 2011 considering the subdued economic environment. Moreover, the adoption of new accounting standards has brought us into uncharted territory regarding the recognition of actual profit and thereafter its distribution.
“While profitability is lagging behind due to general provisions, effective performance should be compared to the average of 2010, as the year-end figures are more reflective of the reality than the quarterly figures. In an uncertain environment prudential provisioning remains the key to meet the unexpected. In the first half of 2011, Bank of Sharjah has demonstrated the underlying strength of its core business operations. In particular, the bank has witnessed a significant increase in its deposit base and liquidity position,” added Nerguizian.