Bank of Sharjah faces capital deficit

CAR at 10.75 pc against country average of 17.6 pc

DUBAI/October 31-2020: Bank of Sharjah (BoS), which has seen its first half (H1) profit plummet 88 per cent from AED151.85 million to AED18 million as of June end, 2020, is currently confronted with capital deficit challenge.

The bank that sits on a shareholders’ equity (capital base) of AED3.19 billion as on June 30, 2020, is in capital deficit given the quantum of risk it carries in its asset book.

Low CAR

The bank’s capital adequacy ratio (CAR) at 10.75 per cent is in shortage against the minimum CAR of 14.5 per cent prescribed by the Central Bank of the UAE, though the COVID period exempts banks to maintain a CAR as low a11.5 per cent as part of the measures announced by the Central Bank specific to this period.

The UAE banks on an average enjoy a capital adequacy ratio (CAR) of 17.6 per cent, much higher than the minimum prescribed by the Central Bank, in line with the trend historically.

Total equity of BoS was AED3.19 billion as of June end, compared with AED3.13 billion as of December end 2019, and AED3.87 billion as of June 30, in the earlier year.

It goes without saying that the bank can’t grow its asset base for want of capital, but more serious is the fact that the current capital is not sufficient to hold its present risk weighted assets.

In fact, BoS has been facing the pressure from its 100 per cent Lebanese subsidiary, Emirates Lebanon Bank (EL Bank), which has been facing problems idiosyncratic of the country, where it operates.

BoS has 10 fully owned subsidiaries including EL Bank, which was acquired in 2008.

Healthy UAE operations

In fact, BoS has reported a net profit of Dh210 million for its UAE operations for the first half 2020, up 38 per cent compared with Dh152 million in the same period of 2019.

But the losses incurred by its fully owned Lebanese subsidiary pulled its consolidated profit down for the period, to as low as Dh18 million compared with AED151.85 million in the earlier period.

“The first half of the year has marked very significant developments having impacted markets, where the Group operates in. Despite all challenging environments, the Group’s UAE operations demonstrated resilient performance underpinned by the robust fundamentals,” the bank said in a statement.

Strong balance sheet

The bank said its balance sheet remains strong, with total assets standing at Dh34.45 billion compared with AED31.75 billion at year-end 2019 reflecting an increase of 9 per cent growth.

The Group continues to enjoy comfortable liquidity and a solid capital position with a customer deposit base of AED23.5 billion up 10 per cent from AED21.3 billion at year-end 2019.

The bank’s loans-to-deposits ratio was 82 per cent at the close of the first half of 2020 compared with 83 per cent at the year-end 2019, whereas the cost-to-income ratio was 32 per cent compared with 57 per cent a year earlier.

High provisions in Lebanon

The Group’s operations in Lebanon, through its subsidiary EL Bank, have been witnessing unprecedented events stemming from political and economic turmoil, since October 17, 2019.

“The Group has complied with Banque du Liban’s (BDL) call for the increase by 20 per cent of the equity of Lebanese banks prior to June 30, 2020,” the bank statement said.

Dividend, directors’ remuneration skipped

At the annual general meeting of the shareholders held on August 5, 2020, the shareholders voted against cash dividends distribution’, directors’ remuneration and appropriation to contingency reserves.

The major shareholders of BoS are Sharjah Asset Management with 17.16 per cent, United Alsaqer Group (12.65 per cent) and Ahmed Abdalla Al Norman (6.23 per cent).

 

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