Increase In Deposits And Liquidity Offset First Quarter Profit Decline For Bank Of Sharjah

Bank of Sharjah’s net profit for the first quarter of 2011 was AED 81 million compared to AED 134 million in the corresponding period of 2010.

An increase in the bank’s collective impairment provisions and the decline in regional stock markets contributed to the first quarter profit decrease.

Total assets reached AED 20,666 million, an increase of 12% over the corresponding March 31st, 2010 figure of AED 18,419 million. Total assets are comparable to the December 31st, 2010, balance of AED 20,618 million.

Over the last year, Bank of Sharjah has substantially increased its deposit base.

Total deposits reached AED 14,765 million as of March 31st, 2011, an 18% increase over the corresponding March 31st, 2010 figure of AED 12,482 million, reflecting customer confidence in the bank. Compared to the December 31st, 2010, figure of AED 14,377 million, the increase in deposits was 3%.

During the first quarter of 2011, the bank’s loans and advances reached AED 12,704 million, an increase of 7% over the corresponding March 31st, 2010, figure of AED 11,854 million. The increase over the December 31st, 2010, figure of AED 12,107 million was 5%.

The increase in deposits over loans and advances has significantly enhanced the bank’s loans-to-deposits ratio, which fell to 0.86 in March 2011 from 0.95 in March 2010.

The bank’s equity at the end of the first quarter stood at AED 4,248 million, a 3% decline compared to the December 31st, 2010, figure of AED 4,395 million.

The decline was mainly due to the 2010 cash dividend of AED 210 million paid during this quarter. However, when compared to the corresponding March 31st, 2010, figure of AED 3,978 million, total equity registered a 7% increase.

Compared to the corresponding period of 2010, net liquidity improved by 46% in the first quarter of 2011.

As of March 31st, 2011, net liquidity stood at AED 4,377 million versus AED 3,002 million as of March 31st, 2010. When compared to the December 31st, 2010, figure of AED 4,682 million, net liquidity decreased by 7%.

This improvement in liquidity, which was driven by the 18% increase in deposits, saw a 13% drop in net interest income, due to the depressed interbank interest rates.

The decline in the regional financial markets, exacerbated by the recent political uncertainty in the Middle East, resulted in a AED 3.7 million loss to the bank’s trading investments portfolio versus an estimated gain of AED 25 million.

As of March 31st, 2011, the bank’s collective impairment provisions reached AED 360 million –
and its capital adequacy ratio, as per Basel II guidelines, stood at 24.91% compared to 24.98% as of December 31st, 2010.

Fitch Ratings has recently reaffirmed Bank of Sharjah’s Long-term Issuer Default Rating at ’BBB+’ with a stable outlook. The firm attributed the bank’s individual rating to its small but resilient franchise, high capital ratios, good liquidity and healthy asset quality.

Commenting on the results, Mr. Varouj Nerguizian, Executive Director and General Manager of Bank of Sharjah, said: "The political unrest that occurred in the MENA region during the first quarter of 2011 negatively impacted regional financial markets.

"The challenge of continually assessing risk and monitoring exposure to these markets, coupled with new risk classification measures introduced by the U.A.E Central Bank, might prove detrimental to the banking sector in 2011 considering the subdued economic environment."

Mr. Nerguizian added: "However, the planned enhanced investments in infrastructure projects by the U.A.E authorities could lead to a resurgence in capital investment and consumption in the second half of 2011."

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