The multi-pronged strategy followed by National Bank of Umm Al Qaiwain (NBQ) to strengthen its liquidity has surprised analysts.

The question being asked by analysts is whether the move has got anything to do with the ongoing dispute between Global Investment House (GIH) and NBQ regarding a reported plan of the Kuwaiti investment bank to buy a large stake in the UAE bank. While NBQ is seeking the remaining cash from GIH, the latter has filed a lawsuit to get back Dh 918 million it has paid to NBQ. Even as NBQ's customer deposits increased by more than Dh1 billion from Dh6.822bn to Dh7.857bn during the first nine months of the year, the bank brought down its loans and advances by about Dh1.5bn

At the same time, substantial amounts of funds have been moved to the Central Bank as certificates of deposits (CDs) bearing interest as low as 0.5 per cent.

While cash and balances with the Central Bank surged from a mere Dh400m as of end-December 2008 to Dh2.93bn as of end-September 2009, from a nil position in CDs, as of 2008 end, the bank bought CDs worth Dh2.6bn. This shows that the bank has taken all steps to remain liquid.

Nasser bin Rashid Al Moalla, Managing Director and Chief Executive Officer of NBQ, in his statement to shareholders, has said following the doubling of the bank's capital in April 2008 and the anticipated receipt of Dh2.359bn from GIH – against the issue of additional share capital to them in accordance with the provisions of the Memorandum of Understanding dated July 16, 2008, signed between NBQ and GIH – the bank increased its lending portfolio by almost 100 per cent during 2008.

GIH remitted only Dh 918m as advance and defaulted on the balance payment. But it kept arguing that the Dh918m placed with NBQ was a deposit and hence it wanted that back.

GIH filed a lawsuit in this regard and the Court of First Instance rejected the GIH lawsuit on July 21, 2009, for which it has filed an appeal.

"Consequently, during the first nine months of 2009, NBQ reduced its advances by 14.5 per cent to Dh8.420bn as of September 30, 2009, compared to Dh9.848bn as of December 31, 2008, and increased customer deposits portfolio by 15 per cent to Dh7.856bn as of September 30 compared to Dh6.822bn as of December 31, 2008," said Al Moalla.

Moreover, the bank moved a step ahead and settled some dues before their maturity date. "As a result of improvement in bank's liquidity position, syndicated and bilateral borrowings amounting to about Dh700m maturing in 2009 and 2011 were prepaid during the second and third quarters. The liquidity position continues to be strong," said Al Moalla.