UNB Shareholders Okay Plan to Convert Deposits into Capital

ABU DHABI - Union National Bank has won approval from its shareholders to convert Dh3.2 billion in deposits from the UAE central bank into a tier-2 capital loan, to cushion it better against the risk of borrower defaults.

By Haseeb Haider

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Published: Tue 24 Mar 2009, 12:18 AM

Last updated: Thu 2 Apr 2015, 7:45 AM

Union National is the latest of several banks that have announced plans to convert their central bank deposits into capital, under a programme that the central bank introduced in September to help boost liquidity and interbank lending during the current financial turmoil.

United National Chief Executive Officer Mohammed Nasr Abdeen said that the capital conversion of Dh3.2 billion would boost his bank’s capital adequacy ratio to 18 per cent from its current level of 14 per cent. The central bank generally requires UAE banks to have minimum capital adequacy of 10 per cent.

Capital adequacy – a bank’s total shareholder capital divided by its total deposits -- is a key measure of any bank’s financial strength. The higher its ratio, the more cash a bank has on hand to pay customers who might want to withdraw their deposits. If depositors fear that a bank is weak and might close down, they may seek all at once to withdraw their money and thereby drive the bank out of business.

Other UAE banks planning to convert central bank deposits into capital include National Bank of Abu Dhabi and Mashreqbank, the country’s largest privately-owned bank. Union National also received a Dh2 billion cash injection from the Abu Dhabi government in January.

Interbank borrowings have increased in the first quarter of this year over the last quarter of 2008, but the economy still needs greater liquidity, Abdeen told reporters after an extraordinary general meeting of Union National shareholders held late on Saturday.

The shareholders also approved a ten per cent cash dividend and the issuance of ten per cent bonus shares that would increase the bank’s capital base to Dh2.06 billion from its present level of Dh1.875 billion. In another sign of the economic slowdown, Union National is targeting a modest 10 per cent increase in its loan portfolio this year. Last year, its total loans grew by 34 per cent.

Abdeen said his bank would adopt a conservative strategy focusing on domestic operations to better withstand the financial crisis. “We will certainly be choosy while lending, but there is no priority for any particular sector of the economy. ...We will lend on the basis of economic viability of the project,” he said.

UNB two years ago acquired the Alexandria Commercial & Maritime Bank in Egypt, now called Union National Bank of Egypt.

Union National had planned for UNB- Egypt to open 20 new branches a year, but the parent bank is now scaling back those plans.

Union National announced earlier that it had earned a record net profit of Dh1.44 billion for the year 2008, an increase of 22 per cent over the previous year.


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