DUBAI, (Reuters) – Emirates NBD (ENBD) is seeking to raise 6.3 billion dirhams ($1.72 billion) to bolster its capital base, the bank said on Thursday, in the latest response to the crisis by banks and officials in the United Arab Emirates.
ENBD will convert emergency federal deposits received last year into regulatory capital to create a thicker safety cushion to absorb shocks, an option likely to be exercised by many UAE banks, Chief Financial Officer Sanjay Uppal said.
“This is not really a bailout. I see this as systemic support,” Uppal said. “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, provoking an exodus of foreign deposits and drying up liquidity banks need to lend to consumers and businesses.
The bank, one of the top three in the UAE, received 12.6 billion dirhams in federal deposits as part of a larger programme sponsored by the Ministry of Finance in 2008 to boost liquidity in the banking system.
Other official measures include a $10 billion bailout of the emirate of Dubai — hard hit by a real estate slump — through a central bank bond purchase and a $4.4 billion capital injection by the emirate of Abu Dhabi into five of its banks.
The drive to boost lending includes a new crisis committee set up by the UAE central bank, which has told banks to increase their capital adequacy ratio to a minimum of 11 percent by June 30, and to a minimum of 12 percent 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.
“Markets and institutions around the world have been impacted by the economic turmoil, and central banks and governments in every part of the world are stepping up to support their financial systems and markets. And I think this has been a very supportive move to support us here,” Uppal said.
Shares in ENBD were up 2.2 percent at 0910 GMT, outperforming most major rivals in the UAE.
“It’s a positive development for the bank because it improves its capital adequacy ratio,” said Shahid Hameed, head of asset management, Gulf, at Global Investment House.
The conversion would boost the bank’s capital adequacy ratio — a key measure of the soundness of a bank — to 14.3 percent from 11.3 percent at the end of 2008, when the bank wrote off 2.26 billion dirhams in assets, Uppal said.
ENBD would convert the deposits, provided last year to a number of UAE banks, to a seven-year bond paying 4.5 percent interest and non-convertible for five years, which would be used to supplement the regulatory capital reserve, known as Tier 2.
“This option has been given to all banks in the country,” ENBD CFO Uppal said. “It is a substantially preferential price.”
Bank shareholders will be asked to approve the conversion at an extraordinary meeting on March 25.
Uppal said an earlier newspaper report saying EMBD would seek to convert 12.6 billion dirhams in deposits into equity was false.