The Federal National Council postpones the creation of the Emirates Development Bank.
FNC delays banking merger over law
The Federal National Council yesterday postponed the creation of the Emirates Development Bank (EDB) amid concerns over the law that would govern it. The new financial institution was announced in November as a proposed tie-up among the Abu Dhabi-based Emirates Industrial Bank (EIB) and Emirates Real Estate Bank, along with Amlak and Tamweel, two large Dubai-based Islamic mortgage firms.
Since then, however, little new information has emerged about the fate of Amlak and Tamweel, which appear to be pursuing a separate merger. The Cabinet last week approved the formation of the EDB as a merger between the EIB and the Real Estate Bank, according to a report from WAM, the state news agency. The new bank would be capitalised with Dh10 billion (US$2.7bn), half of which would come from the Government, the report said.
The proposed consolidation was brought about by the global financial crisis, which has left many lenders - especially those tied to the country's struggling property sector - with large potential losses on their books. Yesterday, however, members of the FNC said during its final session for the season that more planning was needed to establish the legal framework to govern the new bank. "We request from the Government to postpone debating this issue," said Fatima al Mouri, an FNC member. "It comes to us in our final meeting for the season, and we don't want to feel rushed. This is clearly an important issue, and we would be doing the Government and the public a disservice if we just rushed it through."
Abdullah bin Nasser, another FNC member, told the council: "We know that the merger was a result of failed practices from before, so what assures us this will not be the same process all over again? "We need competition. We cannot have one bank do two very integral things. If we study the merger it will be clear that it happened because of the financial situation." Obaid Humaid al Tayer, the Minister of State for Financial Affairs, was at the FNC session yesterday to take questions from members and defend the law as proposed.
Mr al Tayer denied that the merger proposal was a result of the economic downturn. "The former banks were operating on outdated philosophies that no longer reflect where we are today," he said. "This is a part of the strategic direction of the Government, and it is done with a lot of consideration in mind." The laws governing the former banks date to 1982. "The past is the past," Mr al Tayer said. "We have learned from our mistakes, but it is time to move on. It is time to look forward."
As the council debated the law, more details on the structure of and funding for the EDB emerged. The bank would be given a total of Dh10bn, with Dh5bn from the Government to start. It would invest in property and agricultural projects, and its primary objective would be to assist in the development of the UAE's financial infrastructure. "The goal of this bank is not to go into competition with other banks, public or private," said Sultan al Qubaisi, an FNC member in favour of the law.
The bank would be charged with helping finance housing and urban development projects on behalf of the federal Government, and would be given the right to purchase debt from other institutions in an amount not to exceed 25 per cent of its capital. The law says the bank would be set up in Abu Dhabi, with possible branches across the country. Originally, the law aimed to establish international branches, but members of the FNC challenged that. The director of the bank would be selected by the Ministerial Cabinet chaired by the Vice President. Its board would be composed of seven to 11 members.
As discussion on the law stretched on more than four hours, Mr al Tayer and Abdul Aziz al Ghurair, the president of the FNC, reminded the council of the Government's desire to expedite the law. A majority of the members declined to do so, however, and resolved to postpone discussion on the law until they reconvene in the autumn.