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UAE banks to increase provision on bad Saudi loans

Central Bank's directive comes as creditors to Al Saad Group and Al Gosaibi negotiate better terms on their debt

Ahram Online, Tuesday 28 Dec 2010
UAE central bank
UAE Central Bank attempts to reduce banks exposure to bad loans. (Photo Reuters).
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The Central Bank of the United Arab Emirates has made it mandatory for banks in the emirates with exposure to al Saad Group and Ahmad Hamad al Gosaibi & Brothers to increase their loan loss provisions on these liabilities from 50 to 80 percent.

"All these provisions must be 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," UAE Central Bank Governor Sultan Nasser al-Suweidi said in the circular.

The circular comes a year after the Central Bank ordered lenders to raise provisions related to Saad and Al Gosaibi to 50 percent of the exposure.

In addition, the bank's circular asked banks to maintain their 100 percent provisions on Saad Group’s Bahrain-based Awal Bank and Al Gosaibi’s The International Banking Corp (TIBC) that were taken over by the Bahraini central bank last year.

The difference in provisioning ratios reflects the bank's assessment of exposure by UAE banks to those entities and the likelihood that lenders will be able to recover their outstanding loans.

It follows press reports that Saad had offered Kuwaiti banks a settlement of $0.20 for each dollar the group owes.

The reports claim that banks were negotiating for up to $0.40 on the dollar.

The group is estimated to have between sixty and a hundred banking creditors owed around $20 billion in total.

The list of banks involved includes regional and foreign institutions, such as Abu Dhabi Commercial Bank (ADCB), Abu Dhabi Islamic Bank, Commonwealth Bank of Australia, HSBC, JP Morgan and The International Banking Corporation.

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