Our Network

Register for our free newsletter

 
 
Latest News

Banks in UAE in the dark and waiting

http://www.dreamstime.com/-image9425137

With the exact reasons for the central bank's silence a mystery, some bankers have speculated that the possibility of changes to key personnel may be responsible.

2

September 25, 2012 11:31 by



EXTENSIONS

Under the circular, any bank’s lending to the governments of the seven-member UAE federation and their quasi-sovereign entities will be capped at 100 percent of its capital base; its lending to a single borrower will be limited to 25 percent of capital. There is no limit at present.

But some of the largest commercial banks in the UAE, which funded the country’s boom in the 2000s and then supported state-linked entities during subsequent debt restructurings, were well beyond the limits set by the central bank.

According to an April 9 research note by Deutsche Bank, Emirates NBD and NBAD were at 192 and 199 percent of capital respectively. Abu Dhabi Commercial Bank, another state-owned lender, stood at 108 percent.

Offloading loans to get under the bar by the deadline appears both impractical and uneconomic for such banks because of the sheer amount of assets.

NBAD would have had to offload 26.5 billion dirhams ($7.2 billion), equivalent to 16 percent of its loan book, to comply with the new rules, according to a May 23 Arqaam Capital report.

Arqaam calculated that even if ENBD, Dubai’s largest bank, sold 14 billion dirhams of exposure, or 7 percent of its loan book, that would damage income without creating any substantial benefit as around 40 percent of the bank’s book consisted of sovereign and government-related entities’ debt.

Many in the industry therefore believe that extensions for at least some banks will have to be considered ahead of the Sept. 30 deadline.

According to industry sources, the Emirates Banks Association, a trade body chaired by Mashreq CEO Abdul Aziz al-Ghurair, has been lobbying the central bank actively for a six-month extension for all lenders in the country.

Calls to Ghurair, who is also head of the authority which oversees Dubai’s financial free zone, went unanswered.

Foulathi was quoted by the Al Khaleej newspaper as saying in May that the central bank was willing to cooperate with heavily exposed banks and extend the deadline on a case-by-case basis.

DILEMMA

However, the central bank appears to face a dilemma. If it moves rapidly to enforce the new rules, it could cost commercial banks money and even end up pushing them into more risky lending. But it is keen for banks to diversify their lending, both to limit the concentration of risk and to boost loans to the private sector, which the government wants to develop.

ENBD has suffered four successive falls in quarterly profit because of provisioning against government-related entities’ debt.

So the central bank may be stuck between trying to improve the overall banking environment for the long term and accommodating banks’ short-term needs.

“The central bank seems to be in a Catch-22 situation,” said an Abu Dhabi-based banker. “It creates regulations but is not sure whether to enforce it or not.”



Pages: 1 2

2

Tags: , , ,

2 Comments

  1. Tarek Aziz on September 25, 2012 3:08 pm

    Rest assured the Central Bank will not come to rescue any banks for the time being. If they do so, then this will further fuel inflation which the country cannot afford as their finances are already quite over leveraged. The only advise they will give to banks operating in the UAE is to reduce their Non-performing assets at the earliest and stop all restructuring of loans for their clients. Failing which, this will only fuel inflation and result in artificial creation of wealth (paper transaction only). This does help the country’s economy.

     
  2. Tarek Aziz on September 25, 2012 3:32 pm

    This substantiates the economic position in the UAE as well.
    QUOTE
    Global economy still fraught with uncertainty: IMF chief
    Washington, Sep 25, 2012 (IANS)
    The global economy is still fraught with uncertainty and still far from where it needs to be, Christine Lagarde, managing director of the International Monetary Fund (IMF), said here.

    “We continue to project a gradual recovery, but global growth will likely be a bit weaker than we had anticipated even in July, and our forecast has trended downward over the last 12 months,” Lagarde said Monday at an event hosted by the Peterson Institute for International Economics, a Washington-based think tank.

    “A number of factors are weighing the global economy down. At the center of them all is the element of uncertainty; uncertainty about whether policymakers can and will deliver on their promises,” Xinhua quoted her as saying.

    The global economic growth was confronted with a number of challenges including the ongoing eurozone debt crisis, a tepid recovery in the US, the economic slowdown in emerging markets, and concerns in low-income countries about rising food prices and volatile commodity prices, added the IMF chief.

    The global economic recovery hinges on delivering on the policy commitments that have been made, she stressed.
    UNQUOTE

     

Leave a Comment