Abu Dhabi Islamic Bank got a 2.2 billion dirham injection in emergency government deposits and converted it into regulatory capital, following similar moves by rivals in the credit crisis. The moves bring to five the number of Abu Dhabi banks known to have received funds from the Ministry of Finance, which has a 70 billion dirham facility to inject liquidity into the country’s banking sector as a support move during the crisis. FGB secured its money in two tranches, of 2.2 billion and 2.3 billion
dirhams and shareholder approval has already been secured, a senior bank executive told Reuters, declining to be named due to company policy.
The bank’s capital adequacy ratio (CAR) will now be slightly higher than 21 percent. Higher CAR means higher lending and investing capacity," the executive said. ADIB’s chief executive told Reuters said it secured 2.2 billion dirhams of cash from the Ministry of Finance and has converted it into tier-two capital. "Our rationale was simple. If we don’t follow suit, other banks may optically look better capitalized," Tirad Mahmoud said, adding that shareholders have approved the move.
It brings ADIB’s total equity to 11.02 billion dirhams and its capital adequacy ratio (CAR) to 19.75 percent, Mahmoud said. FGB shares closed down 1.4 percent in Abu Dhabi trading, at 9.13 dirhams. ADIB fell 0.7 percent to 3.03 dirhams. FGB and ADIB join National Bank of Abu Dhabi, Abu Dhabi Commercial Bank and Union National Bank in raising money from the finance ministry. The latter three secured a total of 15.4 billion dirhams between them.
It is a cheap way for the banks to strengthen their capital base, whether they need it or not, because the terms-a coupon of 4.5 percent-are advantageous. Analysts said the move would give the banks more of a buffer, but doubted whether it would mean increased lending because of current tough economic conditions. "They (the ministry) had to do it because external financing on which banks were dependent on dried up due to the global financial crisis," said an Abu Dhabi-based banking analyst, who declined to
be named due to company policy. "But strengthening banks alone is not enough to turn the credit cycle. Demand for credit is also needed," he said.
The five banks’ CARs have risen since conversion of deposits. NBAD’s rose to 23.4 percent, ADCB to more than 19 percent and UNB’s to 20 percent. The government of oil exporter Abu Dhabi, one of seven emirates that make up the United Arab Emirates, has also already injected 16 billion dirhams into the same five banks in the form of Tier 1 capital notes.
