The United Arab Emirates Ministry of Finance has amended the terms of its liquidity facility for banks, curbing the state’s ability to convert the debt into equity, reported Reuters, citing Khaleej Times.
Under the amendment, the government is now able to convert the funds it made available to banks in the form of loans into equity only under certain conditions, al-Khaleej said, citing a ministry circular to banks outlining the change. The conditions include a bank’s inability to pay interest on the government funds or settle the principal amount, or failure to uphold the terms of the liquidity facility.
Banks had been reluctant to utilize the facility as they deemed the clause allowing the state to take stakes in their capital to lack restrictions.
In addition, the new amendment gives banks the option to convert into Tier 2 capital the full 50 billion dirham made available to them so far, al-Khaleej said. Previously this option existed only for the first 25 billion dirham tranche, injected into UAE banks by the ministry of finance in October, it said.
The Ministry of Finance has amended the eighth term of the terms allowing banks to convert the funds of the government support (package) as Tier-2 capital, expanding it to encompass all the government funds which were made available to banks,Â instead of restricting it to the first tranche.