The Emirates Development Bank (EDB), a merged lender approved by the Cabinet last month, will begin operations next year
Emirates Development Bank to support small business
The Emirates Development Bank (EDB), a merged lender approved by the Cabinet last month, will begin operations next year with a focus on providing funding to the industrial sector and small businesses owned by Emiratis. The bank will also help finance the construction of 40,000 houses in the capital under the Sheikh Zayed Housing programme, said Younis al Khoori, the under secretary at the Finance Ministry.
"The bank proposes to lend support to the Government's housing schemes, social and developmental projects," said Mr al Khoori, who also heads the government committee set up to oversee the establishment of the new lender. "The initiative will open a fresh avenue of funding for the industrial sector. The bank will also empower small and medium-sized businesses of Emiratis, enabling them to capitalise on the unique growth opportunities of the region."
EDB intends to link with financial lenders in each emirate and is looking to hire senior management with expertise in setting up development banks. The Federal Cabinet passed a draft law last month approving the formation of a Dh10 billion (US$2.72bn) bank, 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, which combines Emirates Real Estate Bank (EREB) and Emirates Industrial Bank (EIB).
Under the original plan announced in November, EDB was supposed to incorporate EREB and EIB, along with Amlak Finance and Tamweel, the two largest Islamic home finance providers in the Emirates. However, 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. The Government is reviewing several options submitted by the Ministry of Economy's steering committee. These include merging the two home financiers, injecting funds or buying part of their loan books. A decision is expected to be announced soon, although analysts question why it has not yet been disclosed to investors more than six months after the Government intervened and trading in the shares of both companies was suspended.
"The merger between the original two banks indicates clearly what the funding priorities for the new entity will be," said Wadah al Taha, an analyst in Dubai. "It's a critical time for SMEs [small and medium-sized enterprises] and the real estate market, and another source of financing will be good for the market," he said. EDB is only the second government-backed merger to have taken place in the banking sector. Emirates Bank and the National Bank of Dubai were merged in 2007 to create Emirates NBD, the largest banking entity in the country.
Lenders in the region are still feeling the impact of tightening liquidity after foreign investors withdrew capital last autumn after investing heavily in local markets. Banks are now considering merging as a way of strengthening their position to compete with larger international rivals. email@example.com