JEDDAH, 19 October 2004 — Bahrain Islamic Bank (BIB) recorded robust growth in its net profitability in 2003 on the back of strong investment income. In first half of 2004, the bank continued its positive momentum, according to a Kuwait-based Global Investment House report.
Global had recommended a price target of 286 fils for the stock in October 2003, when the stock was trading at 250 fils. Since then the stock moved as per expectations and reached its peak of 336 fils on Oct. 11, 2004.
According to the Global report, the bank needs to enhance its income from the core banking activities and not to rely solely on investment income which is volatile in nature. Based on the fundamentals and future growth plans of BIB, the report said, the stock is presently reasonably valued.
Key Performance Drivers
Among the key strategic initiatives undertaken by BIB in the past one year was the management restructuring exercise it carried out. Recently, BIB appointed Yousif Saleh Khalaf as the new CEO of the bank after the resignation of Adnan Ahmed Yousif. In addition to this, BIB appointed four assistant CEOs who will each oversee one of the four divisions namely credit, operations, international banking and retail & branch operations.
The bank has further plans to upgrade its infrastructure and has allocated $3 million for IT development. BIB is in the process of implementing the core banking systems and selection of vendor for the same is already in process, the report said.
Financial Performance — 2003
The low interest rate regime prevalent in 2003 had a negative impact on the profit sharing income of BIB. In addition, BIB had to confront the substantial decline in the return on international commodities Murabaha in both dollar and dinar terms. Despite that BIB was able to increase its profit sharing income, though marginally by 1.1 percent to BD5.28 million in 2003. However, due to the restructuring of its liabilities, the depositors’ profit sharing expense declined at a much higher rate of 25.5 percent to BD1.56 million over the same period.
The net result was that the net profit sharing income scaled up by an impressive 18.9 percent to BD3.73 million in 2003.
First Half Results — 2004
In first half of 2004, the bank continued its positive momentum it witnessed in 2003. The net profit sharing income of the bank increased by 7.2 percent to BD1.83 million over the corresponding period of the previous year. The non-interest income of the bank surged by 80 percent to BD3.06 million. Investment income remained the major contributor to the total non-interest income and it contributed 78 percent or BD2.84 million to the total non-interest income. The operating expenses of the bank increased by 11.3 percent to BD2.21 million. The overall result was that the net profit of the bank scaled up by a whopping 100 percent to BD2.72 million. In first half of this year, total assets of the bank increased by 7.16 percent to BD248 million over the 2003-end level. Net receivables to customers showed modest improvement of 3.5 percent to BD168.4 million while non-trading investments jumped by 6.8 percent to BD51 million. On the liability side unrestricted investments accounts inched up by 6.9 percent to BD170.5 million.
BIB’s Future Plans
The management is exceedingly focused on its retail and corporate banking strategies. The bank is looking for expansion in the domestic markets to shore up its retail capabilities. As per the bank’s five-year plan the bank is targeting at least 15 branches by the end of 2007.
Outlook for the Bank
The outlook for BIB continues to be optimistic, and the strong growth to continue throughout 2004. However, in the longer term perspective, the report said, the bank needs to enhance its income from its core banking activities.
High dependency on investment income doesn’t bode well for the bank.
