Emirates Islamic Bank to convert deposits into capital

Bank is fourth in UAE to convert federal gov't deposits into Tier 2 capital.  
By Inal Ersan
Wed 18 Mar 2009 11:05 AM

Emirates Islamic Bank said on Wednesday it would convert federal government depositsinto regulatory capitalas part of a plan to enable banks to bolster their capital as they face a rise in provisions.Emirates Islamic, a unit of Emirates NBD, is the latest bank in the UAE seeking to strengthen its base of Tier 2 capital as loan defaults mount, and they take provisions for potential bad loans to come.

The UAE finance ministry set up a AED70bn ($19.06bn) facility last year to deposit money into banks.

It has so far deposited AED50bn of that cash, and it is now enabling banks in the second-largest Arab economy to convert those deposits into Tier 2 capital as they strive to improve their capital adequacy ratios.

Shareholders of Emirates Islamic approved the conversion and authorised the board to carry it out, the bank said in a statement on the bourse website, without giving details about the amount it would convert or when it would happen.

Emirates NBD was the first to say it would convert $1.72bn of the deposits it received into Tier 2 capital.

Earlier this month, Dubai's Mashreq and National Bank of Abu Dhabi said they would do the same, with NBAD intending to convert $1.53bn of deposits into capital.

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. (Reuters)

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