Dubai's Mashreq to convert state deposits to capital

Dubai-based Mashreq said on Monday it would convert federal government deposits into regulatory capital after similar moves by several UAE banks seeking to improve asset quality as the financial crisis bites.

Banks in the second-largest Arab economy, where former boomtown Dubai is facing a real estate price correction, are looking to shore up their stockpile of capital as loan defaults mount and they take provisions for more bad loans to come.

Banks across the oil-producing Gulf have written down the value of investments and taken provisions against an expected rise in bad loans after the region's economic boom came to an end late last year as oil prices collapsed.

Mashreq did not say in a statement how much of the Finance Ministry deposits it received under an emergency package unveiled last year it would seek to convert into Tier 2 capital.

At a meeting on Sunday, Mashreq shareholders approved allowing the board to take "all necessary actions" to oversee the conversion, according to a statement on the Nasdaq Dubai website.

Shares of Mashreq - whose shareholders also approved a 10-percent cash dividend and stock dividend of one free share for every 10 held - were down 5.01 percent at 12.45pm, UAE time.

The UAE finance ministry set up a 70 billion dirham ($19.06 billion) facility last year to deposit money into banks. So far, it has deposited 50 billion dirhams of that cash.

Last week, National Bank of Abu Dhabi said it would convert $1.53 billion of deposits it received into Tier 2 capital, while Emirates NBD said earlier this month it would do the same with $1.72 billion of deposits.

Earlier on Monday, RAK Bank said it would seek shareholder approval to take a similar step. (Reuters)

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