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Bankers Welcome Credit Infusion

ABU DHABI — The banking circles by and large welcomed the decision of the Abu Dhabi Government to inject Dh16 billion into five banks headquartered in the emirate, but said only future developments would determine its potential to revive the economy.

No doubt, the decision will enhance the capabilities of the banks to lend more which is crucial in these periods of acute credit crunch. But the revival of economy as a whole will largely be determined by the developments that will bolster the confidence of the consumers, investors and companies. This in turn will be closely linked not only to the domestic economic conditions but to the global situation as whole, the banking experts said. The CEO of National Bank of Abu Dhabi Michael Tomalin, welcomed this ‘important and imaginative initiative’ which will significantly assist the banks in supporting the development of Abu Dhabi.

“This will increase NBAD’s capital resources by Dh 4 billion and would take our Tier One ratio as at 31 December 2008 to 16 per cent”, Michael Tomalin said. “NBAD’s combined capital ratio after the addition of this non cumulative perpetual capital instrument, which is callable by the issuer, would become 18.7 per cent as of December 31, 2008 giving us one of the strongest capital ratios amongst global banks. This good news comes after us reporting a 46 per cent increase in operating profits in 2008” he said. Welcoming the Abu Dhabi Government’s initiative, the head of the research wing and chief economist at the NBAD Dr. Giyas Gokkent said it put the bank in a stronger position to lend.

However, some other experts said even though they welcomed the initiative, its ability to shore up the economy as a whole should not be overestimated. The economy will be stimulated if the confidence of the consumers and companies are stepped up. For example, even if the banks are willing to lend more after receiving the money from the Government, the consumers will avail loans only if they feel their jobs are secure and, they can continue to stay here. In the real estate sector people will take loans only when they feel the prices are not going to fall further, they pointed out. There are also issues of how the banks are going to make use of additional amount they have been sanctioned. For example, some of the banks have issued good dividends even amidst this financial crisis.

The amount given is larger than the dividend paid; no debate that the new money is helping on a net basis. It is simply interesting to no te that the dividends are being paid while the government is making capital available.

· ramavarman@khaleejtimes.ae