Abu Dhabi govt injects $4.36bn into banks
February 05, 2009
ABU DHABI/DUBAI: The government of Gulf oil exporter Abu Dhabi said on Wednesday it would inject a total of 16 billion dirhams ($4.36 billion) into five banks through capital notes to bolster confidence as the global crisis bites.
The move comes as United Arab Emirates (UAE) banks post weaker-than-expected fourth-quarter profits due to provisions for bad loans and write-downs on investment losses as the once-booming region suffers the fallout from the credit crunch.
Some banks have delayed posting their earnings after the central bank asked for a review of major loans and provisions that have weighed on the bottom line.
Three big Abu Dhabi banks, National Bank of Abu Dhabi, First Gulf Bank and Abu Dhabi Commercial Bank, would borrow 4 billion dirhams each under the scheme, they said in separate statements on Wednesday.
“I would categorise it as shock protection,” said Raj Madha, regional banking analyst at EFG-Hermes investment bank. “Shock protection is not as bad as a bailout, the question is, is it for a shock that they don’t know about or for a shock that they do know about.
Wednesday’s cash injection, in the form of Tier 1 capital notes, comes in addition to 120 billion dirhams of emergency funding facilities launched by the UAE central bank and finance ministry since September to help banks cope with tighter credit conditions.
“Given current global economic conditions, the government believes that this strategic initiative is an appropriate and proactive response to ensure that the strong confidence in Abu Dhabi’s financial institutions is further enhanced,” the government of Abu Dhabi said in a statement.
Unlike the earlier facilities, analysts said the new notes issues were very similar to the government buying stock in the emirate’s banks, although they would not give it more direct control of bank operations.
“This is a very thin leash,” Madha said. “It is not equity but it is very similar to what we would call in Europe preferred stock. It is very similar to equity but the government doesn’t get extra votes or extra control because of it.”
Union National Bank and Abu Dhabi Islamic Bank also said they would borrow 2 billion dirhams each from the government. Banks have been restricting lending as they face tight credit markets especially in the emirate of Dubai, where a real estate price correction has prompted companies to lay off thousands of employees, raising the prospect of defaults on mortgage and consumer loans.
The move comes as United Arab Emirates (UAE) banks post weaker-than-expected fourth-quarter profits due to provisions for bad loans and write-downs on investment losses as the once-booming region suffers the fallout from the credit crunch.
Some banks have delayed posting their earnings after the central bank asked for a review of major loans and provisions that have weighed on the bottom line.
Three big Abu Dhabi banks, National Bank of Abu Dhabi, First Gulf Bank and Abu Dhabi Commercial Bank, would borrow 4 billion dirhams each under the scheme, they said in separate statements on Wednesday.
“I would categorise it as shock protection,” said Raj Madha, regional banking analyst at EFG-Hermes investment bank. “Shock protection is not as bad as a bailout, the question is, is it for a shock that they don’t know about or for a shock that they do know about.
Wednesday’s cash injection, in the form of Tier 1 capital notes, comes in addition to 120 billion dirhams of emergency funding facilities launched by the UAE central bank and finance ministry since September to help banks cope with tighter credit conditions.
“Given current global economic conditions, the government believes that this strategic initiative is an appropriate and proactive response to ensure that the strong confidence in Abu Dhabi’s financial institutions is further enhanced,” the government of Abu Dhabi said in a statement.
Unlike the earlier facilities, analysts said the new notes issues were very similar to the government buying stock in the emirate’s banks, although they would not give it more direct control of bank operations.
“This is a very thin leash,” Madha said. “It is not equity but it is very similar to what we would call in Europe preferred stock. It is very similar to equity but the government doesn’t get extra votes or extra control because of it.”
Union National Bank and Abu Dhabi Islamic Bank also said they would borrow 2 billion dirhams each from the government. Banks have been restricting lending as they face tight credit markets especially in the emirate of Dubai, where a real estate price correction has prompted companies to lay off thousands of employees, raising the prospect of defaults on mortgage and consumer loans.
