Emirates NBD’s capital issuance adds buffer

Issuance of $750m AT1 capital increases ENBD’s Tier 1 capital

Business Editor

Emirates NBD’s recent issuance of $750 million Additional Tier 1 (AT1) capital will boost its buffer against a potential surge in provisions, rating agency Moody’s said.

“The issuance is credit positive because it increases Emirates NBD’s regulatory capital buffers in a difficult operating environment,” said Mik Kabeya, an analyst at Moody’s.

Additional buffer

Moody’s analysts estimate the issuance increases ENBD’s regulatory Tier 1 capital ratio by 64 basis points to 17.5 per cent on a pro forma basis (based on risk-weighted assets as of 31 March 2020) from 16.8 per cent reported as of March 2020.

If the bank decides later this year to call its outstanding $500 million AT1, which has a first-call date on 17 September, the net increase in its Tier 1 capital ratio as a result of the $750 million AT1 issuance will be around 34 basis points, the rating agency said.

“The bank’s increased regulatory capital provides it with an additional buffer to absorb provisioning charges as a result of asset quality deterioration, which we expect will be substantial for UAE banks this year because of the difficult operating environment,” said Kabeya.

Data from Moody’s show as of March 2020, Emirates NBD’s ratio of problem loans to gross loans was 5.5 per cent, compared with December 2019, when the bank’s ratio was 5.6 per cent and the local average was 4.6 per cent.