181222 Lloyd Maddock
Lloyd Maddock Image Credit: Supplied

Dubai: Sharjah-based Invest Bank has been hit by high levels of non-performing loans (NPLs), largely from its exposure to cyclical down turn in real estate and construction market.

Invest Bank and the government of Sharjah are in negotiations regarding the latter’s injection of capital. The investment by the Sharjah government is subject to regulatory and shareholder approvals. This plan will be presented at the bank’s AGM scheduled for the December 29, 2018 for approval.

The Central Bank of the UAE (CBUAE) said last week that it will support Invest Bank with all the available liquidity facilities while the bank is attempting to get fresh capital infusion.

Lloyd Maddock, CEO of Invest Bank, explains the bank’s plans in strengthening its balance sheet:

What exactly is the financial position of Invest Bank that is warranting fresh capital infusion and liquidity support?

Lloyd Maddock: While Invest Bank’s underlying business remains strong and we have a 40-year track record of profitability, we recorded our first ever net loss in 2017. We have a portion of our loan book extended to the construction and real estate sectors, which are currently suffering a cyclical downturn. As a result, Invest Bank needs to take more prudent measures.

In order to make the necessary provisions, and to ensure Invest Bank’s capital ratios remain at the required level, we need to inject additional capital. The provisions we have made already impacted our bottom line in the first half of 2018, and we expect to make further provisions in the second half of this year.

As at June 30, the bank’s assets stood at Dh16.4 billion, down slightly from the Dh16.9 billion recorded at December 31, 2017. Customer deposits stood at Dh13.5 billion (FY 2017: Dh13.6 billion) and the bank recorded net loans of Dh11.8 billion (FY 2017: Dh13.6 billion). Over the same period, our loans-to-deposit ratio was 88 per cent and liquid asset ratio came in at 17 per cent. This was mainly attributable to our stable deposit base.

We have evaluated all available options to raise capital. Following this, the Board is recommending to shareholders the introduction of Government of Sharjah as Invest Bank’s strategic majority shareholder by way of an injection of capital. This will support our capital needs and can secure our future.

Can you please share the current non-performing loan (NPL) provision numbers and explain which sectors (retail/corporate or SMEs) contributed to it?

LM: At the end of June 2018, the total provisions against non-performing loans came to Dh290 million; the total was Dh872 million for the full year 2017. The majority of the non-performing loans came from the construction sector. Construction, and related industries, has experienced a challenging period as a result of a softening real estate market.

Are these NPLs the result of legacy bad loans or a very recent development?

LM: They are the result of legacy loans. During 2018, the Board has taken steps to make changes to the senior management team with the appointment of a new CEO, COO and chief risk officer. We have also undertaken a comprehensive review of our policies and processes to ensure that our risk assessment and governance regime are sufficiently robust.

The CBUAE said in statement on last Sunday that it is ‘closely monitoring’ Invest bank’s financial developments for some time and has been working with the bank and the Government of Sharjah to develop a plan to strengthen its capital base.

What are these plans?

LM: The plans we have developed to boost the bank’s capital involve the Government of Sharjah acquiring a majority stake in Invest Bank. In return, the Government of Sharjah will make the injection of the capital we need to absorb provisions against potentially non-performing loans and to strengthen our balance sheet. The Central Bank supports the injection of capital by the Government of Sharjah. We are working closely with both the Government of Sharjah and the UAE Central Bank and it is a major benefit to have two strong financial allies supporting Invest Bank at this time.

What will be the role of Sharjah government in supporting the bank? Does the government already hold a stake in the bank?

LM: The Sharjah Government does not currently hold any shares in Invest Bank. Subject to shareholder approval, they would become the majority shareholder in Invest Bank with a representation on the Board. The details of the transaction will be discussed in detail with shareholders at the General Assembly on December 29.

The role of the Government of Sharjah is important in the short term to address Invest Bank’s capital requirement. The Government is committed to inject 1.9 billion of capital with an initial injection of about Dh1.1 billion. Over the longer term, having the Government of Sharjah as a strategic investor in the bank will help us to develop and grow our strong underlying business.

After the capital infusion what per cent of the bank’s equity will be owned by government of Sharjah?

LM: Subject to shareholder approval, the transaction would result in the Government of Sharjah owning just over 50 per cent of Invest Bank. This would make it the majority shareholder.

Who are the other major shareholders of the bank currently?

LM: Major shareholders of Invest Bank include International Private Group, Emirates Investment Bank and Emirates General Trading Development. Together they make up nearly 40 per cent of the issued shares.

After the fresh capital infusion, do you expect to see a reduction in the shareholding of International Private Group?

LM: As this will be a direct capital injection through the issuance of new shares, all shareholders will be diluted.

There have been talks of a three-way merger among UAB, Bank of Sharjah and Invest Bank. Is there any clarity on such talks?

LM: Our full and undivided focus is on recapitalising the bank. We are aware that market speculation of a three bank merger has recently resurfaced. We denied similar rumours a few months ago and our position hasn’t changed.