Noor Islamic Bank: MEED Assessment

23 March 2010

Bank’s dependence on the state for sources of funding raises concerns about future lending capacity

Noor Islamic Bank in numbers
Paid-up capital$860m
Assets in June 2009$6bn
Capital adequacy ratio21.3 per cent
Source: Noor Islamic Bank

NIB was formed during the last big wave of bank creations at the peak of Dubai’s economic boom in 2007 and is part of a new breed of Islamic banking institutions that have the financial backing of their governments.

Just six months after the launch of NIB, the Abu Dhabi Investment Council, one of Abu Dhabi’s sovereign wealth funds, provided $1.1bn towards the establishment of Al-Hilal Bank, another fully sharia-compliant bank.

NIB has recorded impressive growth to date. Today, NIB has a capital adequacy ratio – the key measure of a bank’s financial strength – of 21.3 per cent, well above the UAE Central Bank’s minimum requirement of 11 per cent.

In addition to being involved in some high-profile transactions, its consumer banking division has gone from strength to strength. The bank opened 10 branches within its first eight months of operations and its client base more than doubled during 2009. 

However, given the composition of its shareholders, the bank has a high dependence on the state for its sources of funding, which raises concerns about its future lending capacity.

Banks have pulled back from lending to each other, so loan costs have remained stubbornly high. Lenders are also finding it difficult to raise funds through the issue of bonds, which have become more expensive.     

Last year, NIB received an undisclosed portion of Dubai’s Financial Support Fund intended to stimulate growth in the emirate. But is not clear whether further support will be made available to it.

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