Business | Banking
Exposure likely to impact lending
When UAE Central Bank Governor Sultan Bin Nasser Al Suwaidi recently admitted that he expected the combined exposure of UAE banks to the troubled Sa'ad and Al Gosaibi groups to be "significant", speculation on the local banks involved and the extent of their exposures went into overdrive.
- By Rachna Uppal, Staff Reporter
- Published: 23:45 July 10, 2009
Dubai: When UAE Central Bank Governor Sultan Bin Nasser Al Suwaidi recently admitted that he expected the combined exposure of UAE banks to the troubled Sa'ad and Al Gosaibi groups to be "significant", speculation on the local banks involved and the extent of their exposures went into overdrive.
The Central Bank is working with the country's 24 national banks as well as the foreign banks here to assess the full impact of the problem on the balance sheets.
Details on increasing loan loss provisions and releasing specific data will be communicated to banks by the Central Bank.
So far, the Central Bank has not put a precise figure on UAE banks' exposures to the two Saudi groups but according to a Reuters report, at least five local banks, including Mashreqbank, National Bank of Abu Dhabi, and Abu Dhabi Commercial Bank, are affected.
"Banks in the region are now concerned that there may be more corporate defaults to come - which does seem likely, particularly for firms with extensive overseas investments, given the global recession and the difficulty of obtaining new credit," says Jane Kinninmont, economist for Middle East and North Africa at the Economist Intelligence Unit (EIU).
"Nonetheless we are likely to see some changes to banks' lending policy as a result of these events.
"The practice of "name lending" - that is lending to well-established family companies largely on the basis of their good name - is likely to be wound down.
"Gulf family firms will find themselves under more scrutiny and some might even volunteer to make themselves more transparent if it is becoming very difficult for them to get credit otherwise," Kinninmont adds.
With second quarter earnings season about to kick off, there is some trepidation with which banks will deal with the exposure issue.
"All in all, we expect collective credit costs to increase across the region but this should be more than offset by widening margins during the quarter.
"As for specific credit costs against exposure to the Al Gosaibi and Sa'ad Group, we agree with the wider belief in the market that banks will await directions from the central banks on the issue," according to equity research analysts at Credit Suisse.
In the meantime, a lack of publicly available information on the issue may make investors more jittery as results come filtering in from this week onwards.
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