Dubai has ordered Emirates NBD, the emirate’s biggest lender, to take over a troubled smaller competitor that was bailed out by the government earlier this year, as part of a move to consolidate a banking sector still suffering from bad debts.
The takeover of Dubai Bank by government-controlled Emirates NBD, one of the largest banks in the Gulf, is part of “necessary steps to empower financial institutions to fully operate in a way that serves the national economy,” the government’s media office said in a statement on Tuesday.
The move, ordered by Sheikh Mohammed bin Rashid al-Maktoum, Dubai ruler, comes after the government injected capital into Dubai Bank in May. Dubai Bank was created in 2002 as an Islamic institution by shareholders Dubai Holding, a troubled conglomerate owned by the ruler, and Emaar Properties, a large real estate group.
The government intervened earlier this year to protect depositors in Dubai Bank as loan losses increased, saying it was considering a merger with another bank in which it had an interest. Emirates NBD owns another Islamic banking arm, Emirates Islamic Bank.
Investment Corporation of Dubai, which oversees government holdings, owns about 55 per cent of Emirates NBD. No financial details of the takeover have been revealed.
At the end of June, Emirates NBD had assets of Dh288bn ($78bn), according to its financial statements. The bank said on Tuesday that Dubai Bank would add 6-7 per cent to that, implying assets of up to Dh20bn and combined assets in the new entity of more than Dh300bn. The combined entity will have 150 branches, the bank said.
“The transaction will have zero impact” on Emirates NBD’s profit and loss or non-performing loan numbers from the date of acquisition,” Rick Pudner, Emirates NBD’s chief executive, said on Tuesday.
Ahmed al-Tayer, long-standing Emirates NBD chairman, was removed from his position in June and replaced by Sheikh Ahmed bin Saeed Al Maktoum, chairman of Emirates Airlines.
No reason was given for his departure, but speculation emerged that the veteran banker may have expressed concerns about a merger with Dubai Bank, which lent heavily to troubled Dubai Holding and amassed other bad debts.
Liquidity in UAE banks has increased on higher oil prices and regional political turmoil, but the sector is still working through non-performing loans inherited since the real estate bust of 2008 halved property values.
source: Financial Times