Abu Dhabi injects $4.36bn into banks

[Naveed Yaseen]

ABU DHABI/DUBAI: The government of Gulf oil exporter Abu Dhabi said on Wednesday it would inject a total of 16 billion dirhams ($4.36 billion) into five banks through capital notes to bolster confidence as the global crisis bites.

The move comes as United Arab Emirates (UAE) banks post weaker-than-expected fourth-quarter profits due to provisions for bad loans and writedowns on investment losses as the once-booming region suffers the fallout from the credit crunch. Some banks have delayed posting their earnings after the central bank asked for a review of major loans and provisions that have weighed on the bottom line.

Three big Abu Dhabi banks — National Bank of Abu Dhabi , First Gulf Bank and Abu Dhabi Commercial Bank — would borrow four billion dirhams each under the scheme, they said in separate statements on Wednesday.

Wednesday’s cash injection, in the form of Tier 1 capital notes, comes in addition to 120 billion dirhams of emergency funding facilities launched by the UAE central bank and finance ministry since September to help banks cope with tighter credit conditions.

“Given current global economic conditions, the government believes that this strategic initiative is an appropriate and proactive response to ensure that the strong confidence in Abu Dhabi’s financial institutions is further enhanced,” the government of Abu Dhabi said in a statement.

Union National Bank and Abu Dhabi Islamic Bank also said they would borrow two billion dirhams each from the government.

Tier 1 capital: Banks have been restricting lending as they face tight credit markets especially in the emirate of Dubai, where a real estate price correction has prompted companies to lay off thousands of employees, raising the prospect of defaults on mortgage and consumer loans.

Last week, the UAE, a seven-member federation, said it was considering setting up an emergency panel to deal with the global financial crisis and urged each emirate to reform banking policies to ease access to credit.

Dubai has already set up its own panel, made up of high-profile business figures, to find ways to deal with the crisis, including rethinking an ambitious growth policy that saw it launch multi-billion property developments.

Most Abu Dhabi banking shares extended declines on Wednesday, with National Bank of Abu Dhabi falling three percent and Abu Dhabi Islamic shedding 6.3 percent.

National Bank of Abu Dhabi and Abu Dhabi Commercial both missed analysts’ forecasts for their fourth-quarter earnings this week as they made massive loans provisions to brace themselves for a tough 2009.

National Bank’s quarterly profit fell 34 percent, while Abu Dhabi Commercial on Wednesday came out with a 140 million dirham loss, against analysts’ forecasts that it would earn 442 million dirhams in the quarter.

It also said its chief executive would be replaced as the credit crisis claims takes its toll on the world’s largest oil-exporting region. reuters

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