x Abu Dhabi, UAEFriday 28 July 2017

UAE banks find time is right to repay

Banks are taking advantage of record low interest rates to refinance their crisis-era loans from the UAE Government before costs rise.

First Gulf Bank has repaid its Dh4.5bn debt to the Government four years early. Paulo Vecina / The National
First Gulf Bank has repaid its Dh4.5bn debt to the Government four years early. Paulo Vecina / The National

Banks are taking advantage of record low interest rates to refinance their crisis-era loans from the UAE Government before costs rise.

The Central Bank and the Ministry of Finance supplied the funding to prevent a liquidity seizure at the onset of the global financial crisis, but as banks have returned to health they have sought to replace crisis-era funding with cheaper sources of capital.

The loans are structured so that they become more expensive to hold as time passes.

First Gulf Bank said yesterday it had repaid its Dh4.5 billion (US$1.22bn) Tier 2 funding line from the Government in full. The loan was due to mature in 2016.

"The Government's timely and supportive decision allowed the UAE economy to maintain its growth at a time when the global economic scene was facing difficult times," said André Sayegh, the bank's chief executive.

During the past 12 months, banks including Emirates NBD and National Bank of Abu Dhabi have begun repaying the Dh70bn of Tier 2 funding that the Government provided the sector with in 2008.

Abu Dhabi Commercial Bank last week raised $750 million through a Tier 2 bond to repay the loans.

Banks' lending grew at 3.4 per cent to Dh1.1 trillion during the first 11 months of last year, according to the Central Bank.

"A sharp decline in bank funding costs over the past several quarters and significantly lower yields on debt seem to provide UAE banks an incentive to issue debt to replace more expensive issuances in 2008 and 2009," Standard and Poor's said in a report.

 

ghunter@thenational.ae