Case Study Example – Dubai Islamic Bank (DIB)
1. Introduction
Dubai Islamic Bank (DIB), founded in 1975, is the first Islamic bank in the world. It provides Sharia-compliant financial services across retail, corporate, and investment banking. DIB has a strong presence in the UAE and plays a key role in promoting Islamic finance globally.
This case study examines how DIB applies modern corporate finance strategies, focusing on valuation methods, capital structure decisions, and cost of capital calculations, to support its strategic growth and investment decisions.
2. Valuation Techniques
a) Discounted Cash Flow (DCF) Analysis
DCF is used to estimate DIB’s intrinsic value based on projected future cash flows, discounted at the bank’s WACC.
Assumptions:
Free Cash Flow Growth Rate: 5%
WACC: 8.5%
Terminal Growth Rate: 3%
Result: Intrinsic value per share ≈ AED 6.2
Market price (2024): AED 5.9
Interpretation: DIB is slightly undervalued, suggesting potential investment opportunities.
b) Relative Valuation
DIB is compared with peers using P/E and P/B ratios:
Bank P/E Ratio P/B Ratio
Dubai Islamic Bank 7.2x 1.0x
Abu Dhabi Islamic Bank 7.6x 1.1x
Emirates NBD 7.8x 1.1x
Insight: DIB trades close to its peers, indicating fair market valuation.
3. Capital Structure: Choosing the Right Financing Mix
DIB maintains a conservative, Sharia-compliant capital structure, balancing growth, risk, and regulatory requirements:
Equity: 65% of total financing
Debt (Sukuk): 35%
Capital Adequacy Ratio (CAR): 17.1%
Tier 1 Capital Ratio: 14.8%
Key Points:
DIB uses Sukuk instead of conventional debt, complying with Islamic finance principles.
The structure ensures financial stability and supports sustainable growth.
4. Cost of Capital: Estimating Hurdle Rates
DIB calculates its WACC to determine the minimum acceptable return on new projects.
Cost of Equity (Re): 10.6% (using CAPM)
Cost of Debt (Rd, Sukuk yield): 4% after tax
WACC Calculation:
𝑊
𝐴
𝐶
𝐶
=
(
0.65
×
10.6
%
)
+
(
0.35
×
4
%
)
=
8.1
%
WACC=(0.65×10.6%)+(0.35×4%)=8.1%
Interpretation: New projects must exceed an 8.1% return to create value. Projects such as digital banking expansion, fintech initiatives, and regional growth are evaluated against this hurdle rate.
5. Summary & Recommendations
DIB is slightly undervalued and financially strong.
Its capital structure provides stability while supporting expansion.
WACC of 8.1% ensures disciplined investment evaluation.
Recommendations:
Continue issuing green Sukuk to diversify funding.
Invest in digital banking and fintech innovation to drive growth.
Maintain cost efficiency and risk management to preserve profitability.
This structured example follows your project instructions and can be used as a template for your written report.
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