UAE banks asked to raise loan loss provisions up to 80pc
DUBAI: The UAE Central Bank has asked local banks with exposure to two Saudi conglomerates to raise their loan loss provisions up to 80 per cent, according to its circular.
The two family-owned businesses - Saad Group and Ahmad Hamad Algosaibi & Bros. - are engaged in a series of legal disputes with local and international creditors involving up to $22 billion of debt d locked in a complex legal dispute involving up to $22 billion of debt.
"All these provisions must be allocated by the end of 2010 and the Central Bank's approval of the banks' annual audited results are conditional on the allocation of those provisions," the Central Bank Governor Sultan Nasser Al Suwaidi said in the circular.
"It was not unexpected," Mohamed Ali Yassin, chief investment officer at CAPM Investments, told Khaleej Times. I think most of the bans have already taken more than 70 per cent of their loan provisions, Yassin said.
The central bank further instructed that lenders take 100 per cent provisions on exposure to The International Banking Corporation (TIBC), and Awal Bank, subsidiaries of Algosaibi and Saad, respectively, which were taken over by the Bahraini central bank in 2009. Last year, the central bank told banks to take provisions worth 50 per cent of their exposure to the two Saudi firms by the end of 2009. A Kuwaiti newspaper said on Sunday that Saad Group was offering its lenders 20 cents in the dollar against outstanding obligations with indications that some Kuwaiti lenders would accept between 30 and 40 cents.
The move is not new as at the end of last year the group did a deal with Saudi based lenders repaying around $2.6 billion, a decision which irritated many international banks. -PB News