Emirates NBD is close to securing a Dh3.5 billion ($US953 million) government cash injection that will allow the UAE's largest lender to meet new capital adequacy targets set by the Central Bank late last year. Most of the cash is expected to come from the Government of Dubai, which owns 56.6 per cent of Emirates NBD through the Investment Corporation of Dubai (ICD), its investment arm.
The bank declined to comment on the funds but analysts expect an announcement to be made today. ICD could not be reached for comment. "The cut-off date is Tuesday and we expect that the modalities will be announced then," said a senior official at Emirates NBD. The Central Bank has asked all UAE banks that received government deposits to reach a capital adequacy ratio of 11 per cent by the end of this month, up from 10 per cent. That rate, a measure of a bank's capital compared with the amount it has loaned, must be increased to 12 per cent by the end of June next year.
The banking sector suffered a loss of international capital last autumn after foreign investors pulled out, and a global credit squeeze hit lending across the Emirates and made it difficult for banks to raise fresh funds. So far this year, banks have received less than $800m in fresh funding from bond and syndicated loan markets, compared with $10bn in 2006 and 2007, according to Standard Chartered.
The Dubai Government issued a $10bn bond in February aimed at helping government-owned companies, including banks, pay their debtors. Emirates NBD said in April it would boost its capital ratio by issuing Dh3.5bn worth of debt notes in the second quarter through a private placement with major shareholders. Besides ICD, Juma al Majid, a Dubai businessman, owns 5.3 per cent of the bank. The remaining 39 per cent of the stock is traded on the Dubai Financial Market.
Emirates NBD, had a capital ratio of 9.4 per cent at the end of last year, which rose to 9.7 per cent by the end of this year's first quarter, leaving it 1.3 per cent, or Dh3.5bn, short of the Central Bank's target . "This amounts to the injection of regulatory capital into Emirates NBD without diluting shareholders equity," said Raj Madha, a banking analyst at EFG-Hermes. Other major UAE banks are expected to reach the 11 per cent threshold without taking special measures. Dubai Islamic Bank (DIB) had an 11.7 per cent ratio in late March, up from 11.1 per cent at the end of last year. DIB recently pledged to raise an additional Dh3bn of equity over five years.
Overall capital ratios for six major UAE banks shrank from 12.4 per cent in 2007 to 11.4 per cent last year, but have since risen due to various government measures. The Central Bank created a Dh50bn emergency credit facility in September and in October pledged to pump another Dh70bn into the banking system. About Dh50bn has already been distributed among the country's major banks. The Abu Dhabi Government injected another Dh16bn into five Abu-Dhabi banks in February, which is expected to lift the capital ratios of First Gulf Bank and National Bank of Abu Dhabi to more than 25 per cent by the end of the year.
The capital adequacy ratio measures the ability of a bank to meet its liabilities and other credit or operational risks. Banking regulators monitor ratios to ensure depositors are protected while maintaining confidence in the banking system. uharnischfeger@thenational.ae