Dubai-based Mashreqbank and the National Bank of Ras al Khaimah (RAKBank) said on Monday they were planning to convert Federal Government deposits into Tier 2 capital to improve asset quality and bolster balance sheets. The move, widely expected by analysts, follows similar announcements by Emirates NBD and the National Bank of Abu Dhabi this month. Last year, the ministry set aside Dh70 billion (US$19.05bn) for banks, of which it has so far used Dh50bn. Banks are seeking to boost their capital adequacy ratios, a measure of a bank's financial strength and its ability to withstand losses.
Last month, the Ministry of Finance gave banks the option to convert the liquidity injections from October and November into what is referred to as Tier 2 capital. The Central Bank also asked banks to boost their capital adequacy ratios to 11 per cent by July of this year and 12 per cent next year. Mashreq said in a statement that its shareholders on Sunday had given the board approval to take "all necessary actions" to convert the funds.
Shareholders also approved a 10 per cent cash dividend and a stock dividend of one free share for every 10 held. RAKBank still needed shareholder approval, it said. The bank will ask shareholders at an extraordinary meeting on April 8 to convert both tranches into Tier 2 capital. firstname.lastname@example.org