A Bahrain-based Islamic commercial bank has reported a sharp increase in fees and commission income from letters of credit (L/Cs) over the course of this year.

The increase in L/C earnings reported by Shamil Bank, a wholly-owned subsidiary of Ithmaar Bank, contrasts with a substantial fall in profitability in the second quarter.

L/C earnings

Fee and commission income from L/Cs for the second quarter of 2009, amounted to US$907,000, according to figures released by Shamil Bank.

It says this represents a substantial 62 per cent increase in fees and commissions over the US$558,000 earned in the first quarter of 2009.

Saudi exposure

Despite surging L/C earnings in the second quarter, the banks profitability fell substantially.

This is mainly because Shamil Bank booked an impairment provision of around US$6 million in the second quarter for an exposure relating to two family businesses in Saudi Arabia.

Depressed profitability

This resulted in the bank reporting a net profit of US$237,000 for the second quarter of 2009.

Before the impairment provision, the banks profitability in the second quarter was much the same as it was in the first quarter at around US$6.1 million.

Regional banks have a combined exposure probably in excess of US$5 billion due to debts run up by the Saudi family conglomerates, Saad Group and Ahmad Hamad Algosaibiand Brothers.

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