Investment Summary
- The UAE economy continued to perform well on the back of the surge in oil prices in the
past few years with the GDP recording high double digit nominal growth rates since 2003.
Estimates from the Ministry of Economy (MOE) indicate that the nominal GDP increased
by 16.5% to reach AED698.1bn in 2007. In terms of real GDP, the UAE economy grew
by 7.4% in 2007 to reach AED420.2bn.
- Banking sector in the UAE depicts a rosy backdrop amidst a flourishing economy, riding
high on the sky-scraping oil prices. With strikingly low interest rates harboring curiosity
from willing borrowers, bank lendings have so far witnessed colossal volumetric growth
which is expected to remain intact going forward, given that the current situation
persists.
- The bottom-line of the banking sector has grown with a sublime 2003-2007 CAGR of
49%. The swelling bottom line has been attributed to effective deposit mobilization
paving the way to meet the robust demand for credit.
- Islamic banks have increased their share of total bank assets, from 8.8% at the end of
2002 to 13.4% at end of 1Q2008 (as per recent newspaper reports). A range of Shariahcompliant
products was introduced in the market and Islamic products like Ijarah and
Murabaha have become common in property transactions.
- Going forward, we expect the Islamic banking segment to maintain its growth trajectory
with volumes being the fore-drivers. Credit demand is anticipated to emanate from
across the board including corporate and consumer/personal loan seekers. Changing
demographics and the increase in expatriate population will drive personal loan demand
while infrastructure development, growing interest in the manufacturing sector, need
for accommodation and further development of tourism-linked industries is seen as the
demand-pushers for corporate loans.
- On the basis of the mentioned growth drivers, we believe that the Islamic banking assets,
in tandem with the collective assets of ADIB, DIB and SIB will rise at a 2007-2011
CAGR of 21%. Furthermore, on similar grounds, we also expect the Net Commission
Income and the bottom-line of Islamic banks to grow at a 2007-2011 CAGR of 26% and
21% respectively.
- With the DFM and the ADSM expected to grow further, fee based income and capital
gains will consequentially follow suit and fuel to the bottom-line further. Demand for
Sukuks and issuance of other innovative instruments for Islamic financing will promote
generation of advisory/arrangement fee income. With growing awareness of Islamic
banking products and aggressive steps for marketing and relationship building carried out
by the Islamic banks, we see these banks to offer stiff competition to their conventional

counterparts in the race for market share.
- Dubai Islamic Bank is expected to post a 34%YoY growth in its Net Income before
extraordinary items, in 2008 and maintain a 2007-2011 CAGR of 17%. The Net Income
after extraordinary items is however anticipated to be dampened given the extraordinary
gains from transfer of interest in subsidiary realized in 2007; leading to a growth of
1%YoY. The bottom-line is forecast to be driven by the Net Commission Income, surging
at an uncompromising 4-year CAGR of 28% accompanied by Non-Commission Income
swelling at a 4-year CAGR of 22%. While spreads are expected to taper-off slightly and
remain at a 4-year average of 2.6%, the actual growth is expected to be driven by volumes
whereby we anticipate Financing & Investing assets to grow at a 4-year CAGR of 24%,
inline with a similar growth in the bank’s deposit base.
- Abu Dhabi Islamic Bank is expected to register a 50%YoY profit growth in 2008 while
the same is expected to rise at a 2007-2011 CAGR of 29%. Net Commission Income and
Non-Commission Income will maintain a growth trajectory (2007-2011 CAGR) of 22%
and 25% respectively. Since spreads are anticipated to taper-off slightly till 2009 and
then onwards increase, the growth in the bottom-line as per our assumptions, will follow
a similar path. As with other banks, volumetric growth is anticipated to be the ‘key’
word with Financing & Investing assets forecast to grow at a 4-yr (2007-2011) CAGR of
21%.
- Sharjah Islamic Bank is expected to reveal a 44%YoY profit growth in 2008 while
the same is expected to swell by a 2007-2011 CAGR of 28%. Net Commission Income
is expected to maintain the growth shown in the 2003-2007 period with a 2007-2011
CAGR of 31%, driven primarily by volumes till 2009 and thence onwards collectively
by volumes and spreads. Non-Commission Income which has already witnessed supernormal
growth in the recent past may see the continuation of similar escalation for at least
one more year, 2008 before slowing down to normal levels. Non-Commission Income is
expected to grow at a 2007-2011 CAGR of 20%.

Table of Contents
Investment Summary 1
UAE Economy 3
UAE Banking Sector 6
UAE Islamic Banking 14
Peer Group – Comparison 19
Charts Gallery 28
Valuation & Recommendation 30
Player Profiles
DIB 32
ADIB 48
SIB 64