It seems UAE banks are getting ready for a storm, converting the AED70 billion of federal deposits into extra tier II capital. It will help, but some will need more.
Mashreq and RAKBank to turn federal deposits into Tier 2 capital
UAE-based Mashreq Bank and RAKBank said yesterday they would convert their share of the AED70 billion federal government deposits into regulatory capital in a bid to improve regulatory capital ratios. This implies an increase in the cost to 4.5% for Tier 2 capital vs. 4% for the cost of federal funds deposits. Mashreq did not specify how much of the federal deposits it would convert into Tier 2 capital, however, at a meeting Mashreq shareholders approved allowing the board to take 'all necessary actions' to oversee the conversion. RAKBank said it would seek shareholder approval on 8 April to go ahead with the conversion. The moves come after similar approaches taken by banks in the UAE such as National Bank of Abu Dhabi and Emirates NBD.