x Abu Dhabi, UAETuesday 23 January 2018

Dubai gives bank Dh4bn to meet new target

The Dubai Government has supplied Emirates NBD with cash to help the country's biggest lender reach the Central Bank's new capital adequacy target.

The Dubai Government Tuesday supplied Emirates NBD with Dh4 billion (US$1.08bn) in cash to help the country's biggest lender reach the Central Bank's new capital adequacy target. The Government injected the capital through its investment arm, the Investment Corporation of Dubai (ICD), which owns 55.6 per cent of Emirates NBD. The capital is Tier 1 debt, also known as preferred equity. The bank will have to pay 6.45 per cent interest for the first five years, after which the rate becomes floating.

"As the largest bank in the UAE, it is essential that Emirates NBD is well capitalised," said Ahmed Humaid al Tayer, the chairman of Emirates NBD. "Through this issuance we will continue to build on and maximise the benefits of the merger." Emirates Bank merged with NBD in 2007. The Dh4bn in additional capital brings Emirates NBD above the required 11 per cent threshold for Tier 1 capital, which includes equity and preferred equity.

The Central Bank had asked all UAE banks that received government deposits to reach a Tier 1 capital adequacy ratio of 11 per cent by yesterday, up from 10 per cent. That rate, a measure of a bank's capital compared with the amount it has loaned, must be further increased to 12 per cent by the end of June next year. So far, the Central Bank has pledged a Dh50bn emergency credit facility and pledged to pump another Dh70bn into the banking system, of which Dh50bn has already been injected.

"A strong banking system is essential for the continued development of the UAE and through this injection of Tier 1 Capital, ICD is able to demonstrate its full commitment to ENBD," said Mohammed al Shaibani, the chief executive of ICD. The banking sector suffered a loss of international capital last autumn when foreign investors pulled out, and a global credit squeeze hit lending across the country and made it difficult for banks to raise fresh funds.