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26 February 2024

Shares higher on capital injection

By Mohamad Al Kady

Abu Dhabi shares closed at their highest level for almost two weeks after the emirate's government injected $4.36 billion (Dh16bn) into five local banks. National Bank of Abu Dhabi (NBAD), the emirate's biggest lender by assets, surged the most in more than three months, while Abu Dhabi Commercial Bank and First Gulf Bank added 10 per cent and 9.8 per cent, respectively. The ADX Banks and Finance Index climbed 4.7 per cent, the most since January 5. Abu Dhabi's ADX General Index gained 1.7 per cent to 2,178.57, ending five days of declines.

"The injections are a pro-active step designed to shore up bank balance sheets in anticipation of stress to come, not an emergency response to short-term distress," Dubai-based HSBC Holdings analysts including David Lepper wrote in a note to clients. "The step is evidence of a government ready to provide stability".

NBAD, Abu Dhabi's biggest lender by assets, will issue Dh4bn of Tier-1 capital notes to the government, which will pay six per cent annual interest for five years and at a floating rate thereafter. ADCB, the emirate's second-biggest lender, and First Gulf Bank, will also receive Dh4bn each by selling notes. Union National Bank and Abu Dhabi Islamic Bank will each get Dh2bn. Lending and investment banking in the Gulf have slowed as oil prices and stock markets in Dubai and Abu Dhabi face the worst global economic slump since the 1930s.

The government injection amounts to about 28 per cent of the combined capital of the affected banks and four per cent of their total loans and advances, HSBC said. NBAD climbed 9.8 per cent to Dh8.07, its biggest gain since October 14. ADCB and First Gulf Bank climbed to Dh1.54 and Dh8.4, respectively. Union National Bank added 9.4 per cent to Dh1.86 and Abu Dhabi Islamic Bank increased 7.6 per cent to Dh2.4.

Meanwhile, Dubai Bourse failed to maintain the bounce at the beginning of the session and ended the week retreating as the index fell 24.90 points, 1.71 per cent, to close at 1433.14 points. The DFM lost around Dh6.2bn of its capitalsation during the week as the market cap reached Dh120bn.

The same scenario – of a bounce during the first half of the session then turning to strong selling pressures by the end – was repeated for the second session. There were increasing selling pressures by foreign institutions during the last two sessions.