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UAE banks will get no deadline extension – Central Bank

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Many of the largest UAE banks were believed to be well over the new limits when the deadline passed on Sunday

October 1, 2012 10:40 by



Banks in the United Arab Emirates will not be given an extension of the Sept. 30 deadline for them to limit their exposure to state-linked debt, a UAE central bank official said on Monday.

“There is no extension. It stands as it is,” Saif Hadef Al Shamsi, assistant governor for monetary policy and financial stability, told reporters in response to a question on the sidelines of an Arab central bankers’ conference in Kuwait.

Shamsi said the UAE central bank would deal on an individual, case-by-case basis with commercial banks on the issue of the deadline. He did not elaborate.

Under new rules, announced in early April with a Sept. 30 deadline, any bank’s lending to the governments of the seven-member UAE federation and related entities is capped at 100 percent of its capital base. Lending to a single borrower is limited to 25 percent. There was previously no limit.

The rules aim to prevent any 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 government-related entities (GREs).

But many of the largest UAE banks were believed to be well over the new limits when the deadline passed on Sunday. According to an April research note by Deutsche Bank, the exposures of Emirates NBD and National Bank of Abu Dhabi were at 192 and 199 percent of capital respectively; Abu Dhabi Commercial Bank stood at 108 percent. Since April a large amount of loan assets has not been offered for sale on the secondary market, bankers say.

Since it could be damaging to the banks and the economy if they tried to sell off their loans to GREs quickly, many commercial bankers do not expect the rules to be applied strictly, and they do not think formal sanctions will be levied against lenders which missed the deadline.



3 Comments

  1. Tarek Aziz on October 1, 2012 8:29 pm

    Excellent initiative by the Central Bank. A quick analysis will indicate that the county’s economy is in a very tight situation indeed as its economy was constricted heavily during the period 2008-09 due to the ongoing global financial crisis coupled with a highly deflated asset prices. In addition, the Dubai real estate crash and the artificial stock market boom and subsequent crash helped to push down the economy further. To counter this, the country increased spending thereby fueling inflation and also pumped in huge amount of liquidity into the banking sector. Being a majority trading center, this was the biggest downward economic fall. What subsequently followed per standard “development economics” theory was that resulted in the now famous “Dubai crisis” as it was very heavily exposed to depressed real estate prices and a cash crunch. The Central Bank have therefore taken a excellent step now to contain the economic crisis going forward by strict application of the above method.

     
  2. Tarek Aziz on October 2, 2012 5:43 pm

    IMF’s views on the current UAE Economy and its commercial banks Q1 2012.

    QUOTE
    Any worsening of the pressures on euro zone governments and banks to fund themselves would pose a direct risk for the UAE, the IMF said. Despite solid economic growth last year, Dubai is still recovering from its 2009-2010 corporate debt crisis.

    “While the funding situation of local banks has stabilised, a foreign funding shock could generate some liquidity tightening in the banking sector,” the report said. It predicted the asset quality of UAE banks would deteriorate this year and the number of bad loans would rise alarmingly, although the banking sector may be able to handle a significant increase. Seven out of 26 listed companies in the UAE’s real estate sector, with total liabilities of $12 billion, have operating losses or do not have sufficient operating income to service their debt, it said.
    UNQUOTE

    In view of the above please tighten the belts of the commercial banks asap.

     
  3. Tarek Aziz on October 7, 2012 7:35 am

    The message is loud and clear now, all foreign banks operating in the UAE (and having made enough monies) please leave the country.

     

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