Purchase brings merger of two lenders closer

Sarmad Khan

• Last Updated: October 19. 2009 9:31PM UAE / October 19. 2009 5:31PM GMT

DUBAI // The new Emirates Development Bank (EDB) moved a step closer to reality after the Government acquired full ownership of one of two lenders that are being merged.

The Ministry of Finance signed an agreement to buy the remaining 49 per cent of Emirates Industrial Bank (EIB), which is being merged with the Emirates Real Estate Bank (EREB) to create the lender.

The Federal Cabinet passed a draft law in June approving the formation of the Dh10 billion(US$2.72bn) EDB, a move viewed as a first step towards consolidation in the local banking sector, where about 50 banks compete for business. The Government is contributing half of the capital to establish the bank.

The ministry said it bought the shareholdings of 13 public institutions, banks and insurance firms, without declaring the value of the deal.

“This agreement marks a key moment in the formation of Emirates Development Bank,” the ministry said in a statement. “This is being done with an eye on the long-term sustenance of the UAE.”

EDB is only the second government-backed banking merger, after Emirates Bank and National Bank of Dubai were joined to create Emirates NBD in 2007.

The EDB is expected to start lending next year with a focus on providing funding to the industrial sector and small and medium-size businesses owned by Emiratis.

It will also help finance the construction of 40,000 houses in the capital under the Sheikh Zayed Housing Programme.

Project financing for industrial and property development has been scarce since the onset of the global financial crisis last year.

Under the original plan announced in November last year, EDB was supposed to incorporate EREB and EIB, along with Amlak Finance and Tamweel, the two largest Islamic home finance providers in the Emirates.

But the fate of Amlak and Tamweel is still not known. Their exclusion from the new EDB has stoked speculation about the future structure of the two Islamic lenders.



skhan@thenational.ae