Business | Analysis

UAE long-running banking saga gets closure

Intervention by the regulator prevented damage to the reputation of UAE banking

  • By K. Raveendran, Special to Gulf News
  • Published: 14:49 July 29, 2013
  • Gulf News

An unsavoury chapter in the annals of UAE banking, depicting the pursuit of a grandiose dream gone terribly wrong, has finally ended. The four-decade-old drama involving the Bank of Credit and Commerce International (BCCI) has had its surfeit of passion, design and deceit before the inevitable denouement came in the form of liquidation.

The curtains came down this month when a Luxembourg court announced the closure of the liquidation process after verifying that all the available assets have been distributed to the beneficiaries and that the liquidators had been granted release from their responsibilities.

The English, Scottish and Isle of Man liquidations had already been closed in May. Similarly, the UAE Central Bank announced completion of the liquidation process after the liquidators submitted a final report to the regulator, the UAE Ministry of Economy and the Abu Dhabi Department of Finance. According to the announcement, the term of office of the UAE liquidators will continue for a couple of months more, by which time their responsibilities will also be finally discharged.

Luxembourg-registered BCCI was set up in 1972 by leading Pakistani banker Agha Hasan Abedi with capital from former President Shaikh Zayed Bin Sultan Al Nahyan. Within a decade, with over 400 branches spread across nearly 80 countries, including China, the bank grew to become the world’s seventh largest private bank having assets worth over $20 billion (Dh73.5 billion).

The period also saw some high-profile acquisitions, including a major US bank. It was inevitable that such reckless growth would invite investigations by financial regulators and intelligence agencies in different parts of the world, which led to charges of money laundering and other irregularities, including questionable lending practices.

Depositors at risk

In 1991, regulators moved a court in Luxembourg to order the liquidation of BCCI on grounds of insolvency as the bank had already lost its entire capital and reserves. This was followed by the closure of branches in several countries, putting the large number of depositors at the risk of losing their money. A series of investigations, litigations and seizures followed, which made the rest of its history truly eventful.

Despite all these troubles, Shaikh Zayed refused to back down from his commitment towards the bank, which saw the Abu Dhabi government agree to contribute up to $2.2 billion for paying off the creditors. The settlement, reached after protracted negotiations between the Abu Dhabi government and the court-appointed liquidators, ensured that a quarter million depositors and creditors received 30 to 40 cents for every dollar owed to them by the bank.

Creditors who accepted the settlement waived their right to sue the bank for any further losses, while the Abu Dhabi government also waived its right to pursue claims for the recovery of money swindled by the bank employees.

The creditors were by and large happy with the offer as they realised that without Abu Dhabi’s contribution, they would have been forced to settle for probably 10 cents per dollar. The settlement provided for the first payments, covering an initial 10 per cent of the claims, to be made in 1993, with the remaining payments spread over a number of years. The latest round of payments marks the conclusion of this process.

BCCI had eight branches in the UAE, with a very active retail portfolio, which has been passed on to the Union National Bank. The UNB may be considered a successor to BCCI as it had been created out of the local operations of the liquidated bank.

Positive approach

But for the firm commitment of Shaikh Zayed and the effective intervention by the Abu Dhabi government, there is no doubt that the BCCI scandal would have caused irreparable damage to the reputation of UAE banking.

Today, however, the country’s banking sector is considered to be among the strongest in the region and is recognised by multilateral institutions like the International Monetary Fund and World Bank for its initiatives in adopting model international standards and procedures. The unwavering commitment in supporting the sector and a positive approach on the part of the authorities have ensured that the UAE banking sector has gained more ground than it conceded in the intervening period.

— The writer is a journalist based in the UAE.

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