Bank to convert Fed deposits
Emirates NBD is to seek shareholder ratification to convert half of the deposits it received from the Ministry of Finance last year to Tier 2 capital.
"This option will not result in any issuance of equity shares to the Ministry of Finance. This conversion option was offered to all UAE banks as part of the original Dh50 billion deposits injection by the ministry last year," a statement issued by the bank said.
The bank's Chief Financial Officer, Danjay Uppal, said the bank had received the largest slice of federal deposits from a pool of Dh50 billion, in two tranches of Dh6.3bn at a rate of 4.5 per cent.
He said: "The immediate plan before us is to convert only one tranche which will boost the regulatory capital base of the bank by Dh6.3bn which will in turn help improve the capital adequacy ratio (CAR) of the bank to a very comfortable level."
The move gains significance at a time when Central Bank Governor Sultan bin Nasser Al Suwaidi stressed the need to further improve the current CAR levels of the banks. The conversion will give the bank a thicker safety cushion to absorb shocks, an option likely to be exercised by many UAE banks, Uppal said. "This is not really a bailout. I see this as systemic support. I would consider it a bailout when the Central Bank is injecting money into the bank to support it."
The conversion comes as UAE banks struggle to resume lending after the credit crisis hit the booming economies of the Gulf.
The bank, the largest in the UAE, received Dh12.6bn in federal deposits as part of a larger programme sponsored by the Ministry of Finance late last year to boost liquidity in the banking system.
Other official measures include a $20bn bonds issue by Dubai – a $10bn tranche of which was purchased by the Central Bank – a $4.4bn capital injection by Abu Dhabi into five of its banks.
The drive to boost lending includes a new committee set up by the UAE Central Bank, which has told banks to increase their capital adequacy ratio to a minimum of 11 per cent by June 30, and to a minimum of 12 per cent by June 30, 2010.
"We expect the banking crisis committee to address ways in which to ease liquidity conditions and kick-start bank lending," analysts at Standard Chartered Bank said in a note.
Uppal said the measures fit with those taken globally to counteract the financial crisis. (With inputs from agencies)
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