National Bank of Abu Dhabi is in discussions with the United Arab Emirates’ central bank over proposed lending caps on local government entities and was “confident” a solution would be found, its chief executive said.
“We are in active conversations with the central bank. We are confident that, by the end of these, we will have a solution that allows the bank to manage its balance sheet,” Michael Tomalin said on a conference call to discuss earnings results, which were released last week.
In the first such change in nearly two decades, the central bank said at the start of April it was imposing new limits of 100 percent of the capital base for all lending by a bank to governments of the seven-member UAE federation and their quasi-sovereign entities, and 25 percent to individual borrowers.
No such limits existed before.
According to a Deutsche Bank note published April 12, NBAD would be hardest hit of the major UAE banks as it had collective exposure worth 199 percent of its regulatory capital, ahead of Emirates NBD at 192 percent.
The note warned “although the interpretation of some aspects of the circular is open to doubt, the new limits will likely prompt some balance sheet deleveraging for the most affected UAE banks, with NBAD and ENBD appearing most at risk.”
“We don’t want to sell off high-quality assets in the Middle East and be forced to buy lower-quality ones,” Tomalin said. “This would be an unintended consequence which I don’t think the central bank wants to see.”
Tomalin didn’t expect the new rules, which banks have until September 30 to comply with, to affect balance sheet growth at the bank.
“Our balance sheet will grow through lending – we see a 10 percent growth this year,” he said.
Credit growth among most UAE banks has been weak, growing in low single digits. NBAD saw its loan book grow by 2.3 per cent in the first quarter of 2012 over the same period last year.
Provisioning will continue at the bank, with NBAD expecting to budget around 350 million dirhams ($95.3 million) in each quarter this year.
“It is well within our capacity to absorb,” Tomalin said.
NBAD has no immediate requirement to raise debt this year but will be opportunistic, he said, adding the bank has bond debt worth 745 million dirhams maturing in 2012 and 89 million dirhams in 2013.
The bank, the largest in the emirate of Abu Dhabi, priced a $750 million five-year bond with a yield of 3.304 percent on March 19, Reuters reported.
