Emirates Islamic plans Dh1.5 billion rights issue to add capital

The Sharia-compliant lender is looking to raise its Tier 1 capital to keep abreast of reserve regulations as its balance sheet grows.

Emirates Islamic needs the extra capital to keep abreast of reserve regulations. Satish Kumar / The National

Emirates Islamic Bank, the Sharia-compliant unit of the UAE’s biggest bank, plans to raise Dh1.5 billion from a rights issue to boost capital amid a surge in lending.

The offer, approved by its board on Wednesday, will raise the Dubai bank’s equity capital by 38 per cent to Dh5.4bn. Each rights share will be priced at Dh1 and the bank will call an extraordinary shareholders meeting to seek approval for the plan.

UAE banks are required to set aside Tier 1 capital equivalent to 8 per cent of risk-weighted assets as an anchor against losses. As Emirates Islamic has expanded lending, it has not built up its reserve cushion by a corresponding amount. As a result, its Tier 1 ratio has fallen to 12 per cent. That is less than the 16.8 per cent average for its peers at the end of June, according to central bank data.

“If the trend continues, we estimate that the bank’s capital buffer over the regulated level would be thin,” said Chiradeep Ghosh, an analyst at Securities & Investment Co in Bahrain.

Last year the bank’s balance sheet grew 24 per cent, and by a further 7.5 per cent in the first half of 2016. Sharia-compliant loans grew at an average annual pace of 27 per cent in the four years to 2015 and climbed a further 14.3 per cent in the first half of this year.

Emirates Islamic has also raised money recently to fund lending. It completed a US$750 million Islamic bond in May and raised a further $250m from a tap of the issue in August.

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