Dubai: Emirates Islamic Bank PJSC, the Sharia-compliant unit of the UAE’s biggest bank, plans to raise Dh1.5 billion ($408 million) from a rights issue to boost capital amid a surge in lending.
The offer, approved by its board on Wednesday, will raise the Dubai-based bank’s equity capital 38 per cent to Dh5.43 billion, according to a statement on the Dubai bourse on Thursday. Each rights share will be priced at 1 dirham and the bank will call an extraordinary shareholders meeting to seek approval for the plan.
UAE banks are required to set aside Tier 1 capital equivalent to 8 per cent of risk-weighted assets as an anchor against losses. As Emirates Islamic has expanded lending, it hasn’t built up its reserve cushion by a corresponding amount. As a result, its Tier 1 ratio has fallen to 12 per cent. That’s less than 16.8 per cent average for peers at the end of June, according to central bank data.
“If the trend continues, we estimate that the bank’s capital buffer over the regulated level would be thin,” said Chiradeep Ghosh, an analyst at Securities & Investment Co in Bahrain.
Last year the bank’s balance sheet grew 24 per cent and by a further 7.5 per cent in the first half of 2016. Sharia-compliant loans grew at an average annual pace of 27 per cent in the four years to 2015 and climbed a further 14.3 per cent in the first half of this year.
Emirates Islamic has also raised money recently to fund lending. It completed a $750 million Islamic bond in May and raised a further $250 million from a tap of the issue in August.
