Two UAE banks have presented a plan for their merger to the Central Bank despite conditions made by one of them not to shoulder any losses suffered by the other bank, the semi-official daily Alittihad reported on Sunday.
The Emirates Islamic Bank (EIB), which has been locked in negotiations to merge or acquire Dubai Bank (DB), stipulated that the government should handle DB’s losses which could range between Dh500 million and Dh2 billion.
“Sources participating in the negotiations believe this condition is difficult to accept…yet, the two banks have presented the results of their merger talks to the Central Bank to consider the merger or acquisition,” Alittihad said.
The paper quoted the unnamed sources as saying EIB stipulated that a government establishment in Dubai should “shoulder DB’s losses, which will be incurred from the difference between the total loss and the new capital and which could reach Dh500m, assuming the total loss is Dh2bn.”
“EIB has demanded guarantees in case new losses of outstanding dues emerge during the re-evaluation of DB and its investment portfolio,” one source said.
“This is because EIB does not want to burden its shareholders or depositors with any losses in the future.”
Citing balance sheets, Alittihad said DB suffered from a loss of around Dh290m in 2009 against a net profit of Dh226m in 2008.
“But the sources said the participants in the negotiations have not reached agreement on the assessment of DB’s unrealised losses, which they said could reach Dh3bn, nearly double the Bank’s capital of Dh1.5bn.”
The paper put DB’s assets at Dh17.3bn at the end of 2009 while liabilities stood at Dh15.6bn and shareholders equity at about Dh1.7bn.
In a previous report, the papers quoted sources involved in the talks as saying the merger plan is intended to create a “massive Islamic banking unit” capable of competing with other banks and matching new economic developments.
“This move comes within the new economic vision of the Government of Dubai, aimed at merging small and medium banking units into major institutions capable of competing with other banks,” the paper reported.
It said the idea had been prompted by the success of the merger between Emirates Bank International (EBI) and the National Bank of Dubai (NBD) into what is known now as Emirates NBD, the largest bank in the UAE and one of the world’s biggest 500 banks.
EIB, 99.8 per cent controlled by EBI, controlled assets of around Dh25.3bn at the end of March. Its shareholders equity stood at nearly Dh2.84bn and net profits for the first quarter at around Dh63m.
Dubai’s Government holds around 29.8 per cent of Dubai Bank, which has an authorised capital of nearly Dh3.4bn. It is controlled by the Dubai Banking Group, an affiliate of the government-owned Dubai Holding.