Emirates Islamic Plans $408 Million Rights Issue to Add Capital

The offer, approved by its board on Wednesday, will raise the Dubai-based bank’s equity capital 38 percent to 5.43 billion dirhams, according to a statement on the Dubai bourse on Thursday. Each rights share will be priced at 1 dirham and the bank will call an extraordinary shareholders meeting to seek approval for the plan, according to Bloomberg.

U.A.E. banks are required to set aside Tier 1 capital equivalent to 8 percent of risk-weighted assets as an anchor against losses. As Emirates Islamic has expanded lending, it hasn’t built up its reserve cushion by a corresponding amount. As a result, its Tier 1 ratio has fallen to 12 percent. That’s less than 16.8 percent average for 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 percent and by a further 7.5 percent in the first half of 2016. Shariah-compliant loans grew at an average annual pace of 27 percent in the four years to 2015 and climbed a further 14.3 percent in the first half of this year.

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