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UAE banks directed to book Dubai World provisions

Local banks in the United Arab Emirates are being directed to restructure debt standing at $25 billion.

Ahram Online, Saturday 11 Dec 2010
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The United Arab Emirates' Central Bank has directed local banks with exposure to indebted conglomerate Dubai World to make "appropriate" provisions in consultation with their auditors, according to Alarabiya website.

Banks in the UAE with exposure to the state-linked firm had made provisions over the last year without specific guidelines. The Central Bank released guidelines early last month directing banks to take provisions for bad loans on a quarterly basis, in an effort to bring the banking system in line with international standards.

The latest circular sent to banks in the last week of November comes two months after Dubai World reached an agreement with creditor banks to restructure $25 billion in debt and resolve a debt crisis that roiled global markets last year.

"The circular effectively means it is now left to individual banks to work out their own size of provisions in consultation with their auditors," an executive of an Abu Dhabi based bank told Reuters.

According to a report from the local Arabic daily Al-Khaleej, the circular also said banks with exposure that did not make provisions in the third quarter would have to do so by the fourth quarter, and that the provisioning could not be delayed and added to year-end profits and losses calculations.

Another Dubai-based banker, who confirmed the release of the latest circular, said the onus was now on banks to determine how much provisions to book based on their exposure.

"Banks are working closely with auditors on the Dubai World provisions, and each bank will do what best suits them."

Dubai, one of the seven United Arab Emirates, and its companies have been climbing out of a $100 billion debt hole over the past year.

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