UAE cbank tells len­ders to in­crease pro­vi­sions

The Pak Banker - - Company& -

DUBAI: The Cen­tral Bank has told lo­cal len­ders to in­crease pro­vi­sion­ing by as much as Dh1 bil­lion ($272.2 mil­lion) to guard against po­ten­tial ex­po­sure to the Saad and Al Go­saibi groups of Saudi Ara­bia, the lat­est fall­out from a multi­bil­lion-dol­lar saga of fraud al­le­ga­tions that con­tin­ues to re­ver­ber­ate around the world.

Most UAE bank­ing stocks dipped yes­ter­day af­ter traders learned of the di­rec­tive.

Ac­cord­ing to a Cen­tral Bank cir­cu­lar, banks were told to in­crease pro­vi­sions to 80 per cent, up from 50 per cent, for all out­stand­ing loans re­lated to Saad Group and Ah­mad Ha­mad Al Go­saibi and Broth­ers.

The banks are re­quired to make the pro­vi­sions by the end of the year.

"All these pro­vi­sions must be [made] 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," said the cir­cu­lar, is­sued by Sul­tan Nasser al Suwaidi, the Cen­tral Bank gover­nor.

The two fam­ily-owned firms are em­broiled in a com­plex and drawn-out le­gal dis­pute that is es­ti­mated to in­volve loans from in­ter­na­tional banks to­talling as much as US$22 bil­lion (Dh80.81bn).

The Cen­tral Bank has said UAE len­ders have ex­po­sure of $2.9bn. Last year, it told len­ders to make pro­vi­sions worth at least half of their ex­po­sure to the con­glom­er­ates, but it is pos­si­ble that some UAE banks have al­ready made pro­vi­sions for more than 50 per cent.

Raj Madha, a bank­ing an­a­lyst with Ras­mala, said the Cen­tral Bank di­rec­tive would "add an ex­tra US$250 mil­lion or so to the min­i­mum pro­vi­sion­ing level, al­though many banks may have al­ready booked some of these ad­di­tional pro­vi­sions dur­ing the year".

The or­der comes as the Kuwaiti daily news­pa­per Al Qabas on Sun­day said the Saad Group had of­fered Kuwaiti len­ders 20 cents for each dol­lar it owed them. Ac­cord­ing to the paper, some len­ders said they would ac­cept 30 cents on the dol­lar and oth­ers sought 40 cents.

"The Cen­tral Bank is con­sid­er­ing the worst-case sce­nario," said Mo­hammed Ali Yassin, the chief in­vest­ment of­fi­cer at CAPM In­vest­ments in Abu Dhabi.

A com­mit­tee of se­nior mem­bers of the Saudi es­tab­lish­ment has re­port­edly been meet­ing for more than a year in an ef­fort to reach a suit­able set­tle­ment.

"Banks have tried to re­cover the money over the last year or so. How­ever, it does not seem that pos­i­tive," said Sulie­man al Mazroui, the chair­man of the Banker's Busi­ness Group in Dubai. "The Cen­tral Bank's role ul­ti­mately is to pro­tect the len­ders from bad and doubt­ful debt from those com­pa­nies."

The cir­cu­lar has also asked banks to main­tain their 100 per cent pro­vi­sions on Awal Bank, and The In­ter­na­tional Bank­ing Cor­po­ra­tion or TIBC, units of Saad Group and Al Go­saibi that were taken over by the Bahraini cen­tral bank last year.

Dubai bank stocks fell 1.2 per cent yes­ter­day, with Emi­rates NBD lead­ing the losses, drop­ping 4.8 per cent to Dh2.75.

Abu Dhabi banks fell 0.9 per cent on av­er­age. - PB News

Newspapers in English

Newspapers from Pakistan

© PressReader. All rights reserved.