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Banks in UAE in the dark and waiting

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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.

September 25, 2012 11:31 by



Commercial bank executives in the United Arab Emirates will meet central bank officials later on Tuesday to discuss a deadline for obeying new limits on lending to state-linked firms, with the lenders desperate for information after weeks of silence from the regulator.

With under a week until the curbs are due to take effect, banks in the UAE are in the dark over whether the rules will be enforced or if their pleas for more time have been heard.

“Bank chiefs will meet the central bank today and there will be lots of ranting and raving about this Sept. 30 deadline,” said a senior commercial banker who is aware of the meeting, declining to be named because of the sensitivity of the issue.

The rules, announced in an early April circular to commercial banks, are apparently designed to prevent any future repeat of Dubai’s corporate debt crisis, which erupted in 2009 as the real estate market crashed; the crisis was worsened by local banks’ excessive exposure to state firms.

But the rules have proved controversial, given the short time frame to comply with the directive and the fact that some of the UAE’s largest banks were over the new exposure limit. This led to demands for more time to comply.

However, banks have largely been working in an information vacuum over the last few months. The central bank has not communicated on the subject in recent weeks, bankers say, and according to two industry sources, it cancelled a routine meeting between its officials and treasury heads of commercial banks on Sept. 23 without citing a reason. Bankers had hoped for answers at the meeting.

Since the crisis, UAE authorities have been praised by the International Monetary Fund and others for stabilising and reforming the banking system. The central bank is introducing new liquidity requirements to prepare banks for the phase-in of Basel III global banking standards in the next few years, and it aims to modernise the money market by creating a discount window from which banks could borrow.

Nevertheless, the confusion over the new exposure limits illustrates risks related to policy and regulation in the UAE’s banking market.

“We have raised some major issues on the substance of the circular and still await the central bank’s response,” National Bank of Abu Dhabi, the UAE’s largest lender by market capitalisation, said in a statement.

The bank added that while it agreed with the principle of the circular and its conversations with the central bank had been “constructive and positive”, it had requested an extension “to give time for detailed and technical discussions to take place.”

Despite repeated attempts to contact central bank officials and spokesmen via telephone and email, none responded to requests for comment.

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.

The four-year terms of central bank Chairman Khalil Foulathi and Governor Sultan Nasser al-Suweidiboth expired in July and there has been no word on whether they will continue in their jobs or will be replaced, banking industry sources said. The usually forthcoming Suweidi declined to speak to reporters at a capital markets conference in Qatar last week.



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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

     

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