Dubai Islamic Bank posted a 33 percent decline in first-quarter profit on Tuesday, missing analysts' forecasts as it booked provisions to weather the global downturn.
The fourth-largest Islamic bank in the Gulf Arab region by market capitalisation earned 370 million dirhams ($100.7 million) in the three months to March end, compared to 555.54 million dirhams in the same period in 2008.
DIB booked 170 million dirhams worth of provisions in the period, reflecting "its prudent and conservative approach during this period of marked global financial instability," it said in a statement.
"The results were a little bit below expectations but it's now reasonable to see banks' earnings, especially in the United Arab Emirates, to be between 15 and 30 percent lower compared to last year," said Samer al-Jaouni, general manager of Middle East Financial Brokerage Co.
The decline in DIB's profit may also have been driven by weak earnings of some of its affiliates, Jaouni said. DIB owns about 41 percent of Dubai property firm Deyaar, according to Reuters data. It posted a 73-percent decline in first-quarter net profit.
"Deyaar earnings were really very low this quarter, so income from subsidiaries has decreased dramatically," Jaouni said.
Dubai's economy is suffering from a slowdown in the real estate sector, which has led to thousands of job cuts and prompted developers to cancel billions of dollars in projects.
In the fourth quarter, banks across the UAE took provisions for bad loans and wrote down investments in their fourth-quarter financial reports. DIB made a net loss of about 3.5 million dirhams in the fourth quarter.
Chairman Mohammed al-Shaibani said in the statement the bank's liquidity position had "improved" in the first quarter.
"While our approach remains conservative, our outlook for the future is firmly optimistic," Shaibani said.
As of March end, DIB had a financing-to-deposit ratio of 67 percent.
On Monday, the bank approved 3 billion dirham capital increase over five years and the conversion of a 3.75 billion dirham state deposit into Tier-2 capital.
In an bid to stimulate lending, the UAE central bank and Ministry of Finance have launched 120 billion dirhams ($32.67 billion) of support facilities for banks since the autumn.
IB said it expected the expansion of its retail banking business, including the opening of 10 new branches in the UAE this year, to contribute "significantly" to its balance sheet growth, accounting for around 47 percent of the bank's revenue for 2009.
"I think the only way now is to work on retail ... financing corporates will have limitations, so maybe retail will be easier now if you want to ... increase your profit margins," he said.
DIB said it expected its customer base to rise by around 15 percent this year, reaching some 900,000 customers.
The bank's retail assets business would grow by around 20 percent in 2009, it said in the statement.
Analysts' forecasts ranged from 337.83 million dirhams to 551 million dirhams, with the average at 416.58 million dirhams, in a news agency Reuters survey in April.