Abu Dhabi: Top UAE banks paying off the emergency loans they previously took from the Ministry of Finance is a sign they now have ample liquidity and funding alternatives, according to banking industry experts.
The UAE banks landed in a serious liquidity squeeze, after foreign banks withdrew Dh100 billion worth of funds from the local banks placed with them to make quick gains from the much-anticipated de-pegging of the UAE dirham from the US greenback, which did not happen. That move coincided with the global financial crisis that forced international banks to withdraw their surplus funds, deposits and investments from international markets, to boost their shrinking liquidity at home.
The Central Bank of the UAE and the Ministry of Finance in total made available Dh120 billion to the local banks to provide the much-needed liquidity boost. In October 2008, the finance ministry poured Dh25 billion into bank deposits to boost liquidity at banks, the first tranche of the Dh70 billion rescue facility. It deposited another Dh25 billion into banks in November the same year.
“Liquidity is not such a big concern at the moment. The inter-bank rates have been falling for the last eight months, which indicates the liquidity in the UAE’s banking system is improving,” Chiradeep Ghosh, senior analyst at Bahrain-based Securities & Investment Company (SICO) told Gulf News by telephone.
“Another reason why the banks have chosen to pay off their MoF loans is because they were expensive. Every year, the interest rates would have gone up 20-50 bps under the step-up clause, so it made sense for the banks to make an early repayment,” Ghosh added.
In May, the UAE central bank said the country’s banks were in a “good financial position and enjoyed excellent capital adequacy.”
In the financial second quarter ended June, the National Bank of Abu Dhabi (NBAD), the emirate’s largest bank by assets, repaid the Dh1.5 billion remaining balance from the Dh5.6 billion loan taken from the Ministry of Finance. Previously, the bank said it had already repaid Dh2.6 billion to the MoF last year and will pay back a further Dh3 billion in the first half of this year.
Dubai-based Emirates NBD also repaid Dh7.8 billion this year of crisis-era funding provided by the Ministry of Finance.
Eisa Al Suwaidi, Chairman of the Abu Dhabi Commercial Bank (ADCB), said the bank repaid the entire amount of Tier 2 loan of Dh6.7 billion from the Ministry of Finance in the first half of 2013 and substituted this with lower cost funding from the wholesale markets.
“As a result of the share buyback and our improved financial performance, the bank reported a significant improvement in return on equity at 17.4 per cent in the second quarter of 2013,” he added.
Union National Bank (UNB), in April, said it had fully repaid the outstanding amount of the Tier 2 subordinated loan of Dh1.7 billion to the UAE Ministry of Finance having in the first quarter of the year repaid early an amount of Dh1.5 billion of the Tier 2 subordinated loan.
Abu Dhabi-based First Gulf Bank (FGB) also said it had repaid its entire debt of Dh4.5 billion to the Ministry of Finance. So did Abu Dhabi Islamic Bank (Adib), which repaid in full the Dh2.2 billion in loans, and Dubai Islamic Bank (DIB) that repaid the Dh3.753 billion deposit, in full, and well ahead of contractual maturity, which it received from the Ministry of Finance in 2008.
DIB cited “robust financial position and strong liquidity” as the key drivers for the decision.
“The capitalisation levels of the UAE banks look to be quite robust. Their balance sheets are showing lending growth and lower NPLs (non-performing loans) and they also have access to funding,” said another banking expert, based in Dubai.
