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ADIB and FGB Secure Fresh $1.8b Capital

ABU DHABI - Two Abu Dhabi-based banks have secured a total Dh6.7 billion ($1.8 billion) in fresh capital from the emirate’s government, the banks said on Sunday, following similar moves by rivals as the downturn bites.

First Gulf Bank (FGB) received Dh4.5 billion from the Abu Dhabi Finance Ministry and said it would convert it into Tier 2 capital, the second most reliable form of capital from a regulator’s point of view.

Abu Dhabi Islamic Bank (ADIB) got a Dh2.2 billion 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 Dh70 billion 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 Dh2.2 billion and Dh2.3 billion 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 per cent. Higher CAR means higher lending and investing capacity,” the executive said.

ADIB’s Chief Executive told Reuters said it secured Dh2.2 billion 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 capitalised,” Tirad Mahmoud said, adding that shareholders have approved the move.

It brings ADIB’s total equity to Dh11.02 billion and its CAR to 19.75 per cent, Mahmoud said.

FGB shares closed down 1.4 per cent in Abu Dhabi trading, at Dh9.13. ADIB fell 0.7 per cent to Dh3.03.

Dash for Cash

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 Dh15.4 billion 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 per cent — 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 per cent, ADCB to more than 19 per cent and UNB’s to 20 per cent.