The National Bank of Fujairah, which counts the emirate's government and Investment Corporation of Dubai among its shareholders, plans to set up a debt programme and regularly tap international capital markets from next year to fund future growth.
NBF has yet to determine the size of the overall debt programme but the initial issuance is more likely to be in the $350 million range, which may reach as high as $500m, chief executive Vince Cook told The National in an interview in Dubai. ICD, the sovereign wealth fund of Dubai, owns 9.8 per cent of the bank, while the government of Fujairah has a 40.2 per cent stake in the Abu Dhabi-listed lender.
“We are getting to the size now, where we think we can justify some sort of an empty-end structure to regularly issue, which is something we have not done traditionally,” Mr Cook said. "This is for longer-term [growth] plans. It’s just a question of waiting for the right time.”
Financial institutions in the UAE have increasingly sought to tap debt markets with the conventional, sharia-compliant and alternative bond issuances this year to take advantage of lower interest rates. Emirates NBD, First Abu Dhabi Bank and Noor Bank are among the lenders that have already completed transactions, while Mashreq has set up a $1 billion programme for issuing multi-currency certificates of deposits in Hong Kong.
The US federal reserve is expected to raise key interest rate this week for the second time this year. However, more issuers are set to raise funds before the Fed hikes rates three or possibly four times this year.
“At the moment there’s an awful lot of issuance in the pipeline and we don’t need to join that queue,” Mr Cook noted.
The lender, which is rated BBB+/A-2 by S&P Global Ratings and Baa1/Prime-2 by Moody's Investors Service, also plans to tap the market for additional tier 1 capital. NBF received the shareholders nod in March to convert the Dh500m additional tier 1 capital notes into ordinary shares at Dh2.85 per note. The shareholders also approved the increase in the ceiling of additional tier 1 capital by $500m to bring the lender’s capital in line with the bank’s growth strategy.
“It’s not a time-critical issue but we see the growth ahead of us, where it could be useful. So we will just see what the market conditions look like in the next six to 12 months,” Mr Cook said. “We did the tier 1 in form of a perpetual note so the size of the issue suggests that we could do that again.”
NBF, which counts lending to small and medium-sized enterprises as one of the core pillars of its business, sees stress subsiding for the sector. The bank has stuck with the SME lending when a number of other banks stopped financing to the sector following massive losses as the economy slowed on the back of the three-year oil price slump.
The exposure of NBF's total loan book to SMEs varies depending on market conditions, but SME lending traditionally ranges between 20-25 per cent of total loans. NBF currently has 8-10 per cent of the UAE’s SME market in the banking sector as a whole, he added.
“We obviously benefitted from being the steady player in that segment. A lot of banks have still not returned to SME lending so we are enjoying their absence,” Mr Cook said. “We will see good growth in that area.”
The banking sector support to SMEs and start-up businesses may change as banks in the county are working with the UAE Central Bank, various ministries and the other stakeholders to find solutions for minimising financing risks for lenders, Mr Cook noted.
“When you look around the world, most countries support the SME sector one way or another so all interested parties [in the UAE] are taking a good look at what are the good experiences and what would work in the UAE’s context,” he explained. “We are part of some of those conversations.”
The banks are reluctant to take financing risk at early stages of a business in a start-up situation, he said. If the government steps in to bridge the first few years of these ventures, it becomes a bankable proposition for the lenders and it will revitalise the whole sector, he explained.
“It could be a combination of fund type investment structure, [or] a guarantee structure,” he said of possible solutions. “For banks to do it jointly with the government makes a lot of sense,” he noted, adding that the lenders are very receptive to these ideas.