The biggest the United Arab Emirates lender complying with Muslim banking rules was placed on ratings watch because loan quality "remains very weak compared to peers" and it hasn't set aside enough money to cover losses, Moody's Investors Service said Dec. 6. Competitor Abu Dhabi Islamic Bank sold perpetual debt in November to raise capital so it can lend more as the U.A.E. economy recovers from a property crash that sent Dubai home prices tumbling more than 65 percent.
"Dubai Islamic will soon need to find fresh capital, or alternatively cut back on loan growth substantially," Jaap Meijer, a director of equity research at Dubai-based Arqaam Capital Ltd., said in an e-mail Dec. 26. He cited DIB's "high dividend payout and low capital-generation capacity."
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