13 UAE banks face Saad, Al-Gosaibi exposure
Sep 28, 2009 at 00:58
The United Arab Emirates' central bank governor said on Monday 13 local banks have exposure to troubled Saudi conglomerates Saad Group and Al-Gosaibi and their affiliates, and the central bank will announce requirements for provisions.
"We have four categories of exposure and will announce the degree of provisions the banks must take for each one," Sultan bin Nasser al-Suwaidi told reporters on the sidelines of a meeting of Arab central bank chiefs in Abu Dhabi.
"Thirteen banks are exposed" to Saad Group and Ahmad Hamad Al-Gosaibi and Brothers Co (AHAB) and their respective Bahrain-based units Awal Bank and The International Banking Corp (TIBC), Suwaidi said.
The conglomerates, linked through marriage, began to face scrutiny in May after they failed to meet some of their debt obligations.
UAE banks' full-year earnings will be lower this year as they will have to take provisions, and due to the effects of the global economic downturn, Suwaidi said.
"They will be lower, because of the global situation and provisions," he said.
Suwaidi added that the central bank had compiled a list of banks' provisions, which "is available to us. We have to set the provisions they must take".
In Monday's meeting, central bank chiefs plan to discuss an "early warning system" for financial institutions, but Suwaidi said it was unlikely they would decide on a mechanism for the system.
"I don't think we will find a solution, we will just discuss it. There was absolutely no answer from the Western central banks" when the matter was discussed at the last World Bank meeting of leaders, Suwaidi said.
As for recommendations from the recent G20 meeting, Suwaidi said: "I believe that all measures that the G20 asks for are already implemented in the UAE." He added that UAE bank liquidity and capital adequacy ratios are even higher than global levels.
Suwaidi said he expected the UAE's 2009 gross domestic product (GDP), growth to be "very small in 2009, if it is positive at all", adding that it could be "slightly positive or slightly negative".
"I believe the global economic situation is still fragile, and this reflects on the local situation," Suwaidi said. Inflation in the UAE is expected to be low this year, he added.
He said liquidity in the country was continuing to improve, while the core situation of local banks had also improved since last April.
The loan-to-deposit ratio in UAE banks has shrunk "magnificently" since the onset of the global financial crisis last year, Suwaidi said.
Interest rates have come down significantly in the past three months and are expected to decline further, he added. "It is expected to decline and it already has."
The central bank's decision in August to set up a new panel of local and foreign banks comprising 11 lenders to establish the Emirates interbank offered rate, or Eibor, will become effective "in two to three days," Suwaidi said.
The new mechanism to fix the lending rate "has already had a positive effect in lowering the rate since its announcement," he added.
The central bank's board of directors in a meeting on Aug. 26 decided on establishing the 11-strong panel to calculate Eibor, using an average of rates from the banks excluding the highest and lowest rates.
Sep 28, 2009 at 00:58
The United Arab Emirates' central bank governor said on Monday 13 local banks have exposure to troubled Saudi conglomerates Saad Group and Al-Gosaibi and their affiliates, and the central bank will announce requirements for provisions.
"We have four categories of exposure and will announce the degree of provisions the banks must take for each one," Sultan bin Nasser al-Suwaidi told reporters on the sidelines of a meeting of Arab central bank chiefs in Abu Dhabi.
"Thirteen banks are exposed" to Saad Group and Ahmad Hamad Al-Gosaibi and Brothers Co (AHAB) and their respective Bahrain-based units Awal Bank and The International Banking Corp (TIBC), Suwaidi said.
The conglomerates, linked through marriage, began to face scrutiny in May after they failed to meet some of their debt obligations.
UAE banks' full-year earnings will be lower this year as they will have to take provisions, and due to the effects of the global economic downturn, Suwaidi said.
"They will be lower, because of the global situation and provisions," he said.
Suwaidi added that the central bank had compiled a list of banks' provisions, which "is available to us. We have to set the provisions they must take".
In Monday's meeting, central bank chiefs plan to discuss an "early warning system" for financial institutions, but Suwaidi said it was unlikely they would decide on a mechanism for the system.
"I don't think we will find a solution, we will just discuss it. There was absolutely no answer from the Western central banks" when the matter was discussed at the last World Bank meeting of leaders, Suwaidi said.
As for recommendations from the recent G20 meeting, Suwaidi said: "I believe that all measures that the G20 asks for are already implemented in the UAE." He added that UAE bank liquidity and capital adequacy ratios are even higher than global levels.
Suwaidi said he expected the UAE's 2009 gross domestic product (GDP), growth to be "very small in 2009, if it is positive at all", adding that it could be "slightly positive or slightly negative".
"I believe the global economic situation is still fragile, and this reflects on the local situation," Suwaidi said. Inflation in the UAE is expected to be low this year, he added.
He said liquidity in the country was continuing to improve, while the core situation of local banks had also improved since last April.
The loan-to-deposit ratio in UAE banks has shrunk "magnificently" since the onset of the global financial crisis last year, Suwaidi said.
Interest rates have come down significantly in the past three months and are expected to decline further, he added. "It is expected to decline and it already has."
The central bank's decision in August to set up a new panel of local and foreign banks comprising 11 lenders to establish the Emirates interbank offered rate, or Eibor, will become effective "in two to three days," Suwaidi said.
The new mechanism to fix the lending rate "has already had a positive effect in lowering the rate since its announcement," he added.
The central bank's board of directors in a meeting on Aug. 26 decided on establishing the 11-strong panel to calculate Eibor, using an average of rates from the banks excluding the highest and lowest rates.