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Sat 21 Feb 2009 08:54 AM

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UAE gov't encourages banks to use stimulus

Rule amendments mean gov't less able to convert bank's debt into equity.

The UAE government is no longer as free to take stakes in banks that utilise its stimulus package, under new rules that aim to encourage more to take up the liquidity offer, it was reported on Saturday.

An amendment to the loan regulations signed off on Friday by the Ministry of Finance only allows the government to convert a debt into equity if the bank is unable to pay interest on the loan, to settle the principal amount, or fails to uphold the terms of the liquidity facility, according to UAE daily Al Khaleej.

A total of AED70bn of government loans is on offer to help banks through the current financial crisis, of which two tranches, worth AED25bn each, have so far been deposited into the country's banks.

However, banks have been reluctant to make use of the facility because of a clause they feared gove the state free reign to take stakes in their capital, according to Mohammed Yasin, managing director of Shuaa Securities.

"This amendment imposes conditions onto the conversion into equity. It's now no longer as open as it once was," Yasin said.

The amendment also gives banks the option to convert the full AED50bn into Tier 2 capital, the Al Khaleej newspaper said. (Reuters)

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