Medium-term funding remains ?a huge challenge

Monday, Feb 14, 2011

Gulf News

Analysts expect more funds as lending picks up

Medium term funding remains a challenge

Dubai Despite the improvement in customer deposits, the UAE banks which traditionally depended on medium term borrowings to bridge the long-term asset — liability mismatches are finding it hard to raise money at affordable rates.

“Cost of funds is still very high. We will approach the market to raise medium-term funds when the rates are viable,” said Surya Subramanian, the Chief financial officer of Emirates NBD during a conference call.

Analysts expect more banks to approach the bond markets for funding as lending picks up. Currently most banks are funded by short term customer deposits with little or no reliance on debt capital markets.

“There is significant liquidity in most markets, but Fitch expects the banks to increase recourse to debt capital markets as their loan books expand. Capital levels are not generally a constraint, and Fitch believes that in most cases additional capital would be available from shareholders,” rating agency Fitch said in recent report.

Liquidity pool

To optimise the cost of funding and tap new liq-uidity pools, many UAE banks are looking at non-traditional markets to raise medium term funds. In a recent move, Abu Dhabi Commercial Bank (ADCB) raised $156.3 million (Dh574 million) in medium-term notes denominated in Swiss francs under its $7.5 billion MTN programme.

Some of the larger banks such as NBAD, ADCB and Emirates NBD have already started tapping non-conventional markets. Recent trends show some banks are keen to tap Asian local currency bonds and sukuk to meet medium term funding requirements.

In June, National Bank of Abu Dhabi sold a 160.2 million Malaysian ringgit-denominated sukuk. In August, Abu Dhabi Commercial Bank raised the size of a Malaysia-targeted conventional bond from 500 million ringgit ($160 million) to 750 million on the back of stronger-than-expected investor appetite. Last year Emirates NBD securitised Dh1 billion in auto loans. The yen-denominated notes were marketed primarily in Japan and Asia.

While access to wholesale debt was challenging last year, bank officials said that the conditions in the debt market are improving and banks are likely to tap the market in the future if the pricing improves. “Currently it is too expensive. We are keenly watching the markets. Meanwhile, we have been raising funds through securitisation deals and long term loan repurchase,” said Rick Pudner, CEO of Emirates NBD.

$7.5b

ADCB’s ?MTN programme

160m

Malaysia-ringgit ?conventional bonds

Cost of funds is still very high. We will approach the market to raise medium term funds when the rates are viable.”

Surya Subramanian

Chief financial officer, Emirates NBD

By Babu Das Augustine Deputy Business Editor